Investing: Getting Started (Part 2)

Here are four common investment options you can choose.

Investment Vehicle Where is it offered? Who monitors it? What is it? What am I buying? How much do I need to start? Typical charges (average values, actual charges can differ per company)
Unit Investment Trust Fund (UITF) Banks Bangko Sentral ng Pilipinas (BSP) You and other investors pool your funds to create a Trust Fund, which is supervised by a Trust Manager from the bank Units of Investment Most start at 10,000 PHP lowest amount so far is 1,000 PHP (BDO Institutional Equity Fund) Annual Management Fee = 1%

If you withdraw before minimum holding period = 0.5%

Mutual Fund (MF) Mutual Fund Companies Securities and Exchange Commission (SEC) You and other investors pool your funds to create a large-sized fund, supervised by a Fund Manager Shares of Stock Minimum is 5,000 PHP. Front-end = 3%

Back end = 5%, charge decreases by 1% per year

Variable Universal Life (VUL) Life Insurance Companies Insurance Commission (IC) You are covered by an investment-linked whole life insurance, investment portion is managed by a Fund Manager Life Insurance with Cash Value from Investment Returns Depends on age and health, people in their 20’s can start at around 2,000 PHP /mo. for basic coverage. The premium contains both insurance coverage and investment.
Stock Market Brokers Securities and Exchange Commission (SEC) Portion of ownership in a company, you supervise it on your own or hire the services of an investment professional Shares of Individual Stock Depends on the minimum required amount to open an account with a broker. Minimum is 5,000 PHP. If hiring a professional to service your investments, their management fees vary; may require a minimum investment amount to supervise (usually 1M PHP and up).

There is also a charge when buying and selling shares, typically 0.005% of the amount traded, plus 0.01% clearing charge and 0.25% broker’s commission (or 20 PHP, whichever is higher).

There’s the UITF offered by banks, mutual funds offered by various mutual fund companies, and the VUL offered by life insurance companies. The stock market is also an option, but if you are a new investor and not yet comfortable with the idea of loss, it’s best to start elsewhere.

UITFs and MFs can generally be grouped together, since they function in essentially the same way. The main difference would be the performance of each fund, which is usually available online if the company is a reputable and trustworthy one.

Those who wish to actually own shares of the company may prefer Mutual Funds, while those who prefer going to brick-and-mortar bank offices might want to go with UITFs. Services for both are also easily available online and through mobile apps.

VULs are insurance products combined with an investment component. They are highly suitable for people who have dependents and also wish to create a regular investment habit. Cost of insurance makes it likely that other options will often outperform the investments portion of the VUL fund, but it serves its purpose as a guaranteed source of money when the insured is suddenly taken out of the picture.

Picking stocks takes time and research; being careless about investing is very dangerous and guarantees that you will lose money. Even the best fund managers that spend hours of their lives tracking funds still experience losses! One big difference between professionals and careless investors is that the pros take on calculated risk, while the latter essentially makes a gamble. However, it is true that possible gains from the stock market are usually the highest among the options.

How does all this information apply to you? Stay tuned for Part 3 to find out.

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