Fresh Ideas

I don’t really understand the meaning of investing in stocks, bonds or money market and reading these terms makes me nauseous and vomit. However, I came to read a very good article in MoneySense magazine that completely gave me a good insight on how things are going and how I can understand these in layman’s term.

Actually, this post should have been for a different category, but I think because I already have a category that is all about money, then I should say that it can still fit in.

Let me start by saying that now in these trying times, it is hard to part ways with your hard-earned money to invest in something lucrative that can expand your asset.

Investing in banks nowadays is not making any sense at all, money wise.

Earning money the easy way is very tempting for anyone given the sweet words coming from counselors and advisers.

However, zero or very low risk investment with a very high, and I mean incredibly high return is really nonexistent unless it is a scam.

There are still several investment types that is low to medium risk and give also low to medium returns.

But if you wanted high yield in your investment, you should convince yourself that this kind of investments are also very, very risky and you may or may not gain again your principal.

One good investment is through Government Securities or GS, which is almost risk-free and offered a fixed income instrument for prudent investors.

Investing in GS is considered risk-free because it is a direct and unconditional obligation of the government and the principal and interests are guaranteed, unless the state goes bankrupt which is impossible to happen.

Government Securities type:

The Philippine government issues two kind of GS: Treasury Bills and Treasury Bonds. These GS are issued by the Bureau of Treasury. Some government agencies and government controlled corporations may issue securities but are not called Treasuries.

Treasury Bills mature in less than a year with a tenor of 91-day, 184-day and 364-day.

The Treasury Bonds in the meantime mature beyond 1 year. The present five maturities are: 2-year, 5-year, 7-year, 10-year and 20-year tenors. Investors are being paid through semi-annual coupons.

Sometimes, the Bureau issue bonds for small investors for a minimal investment requirement of P5,000, which are called Retail Treasury Bonds (RTBs) with 3 to 5 years maturity period.

GS are considered low-risk investment, however, the yield is very different in conventional investing process.

The higher the country’s economic situation is, the lower the government will pay for the premium.

The yield however is much better than just depositing it to the bank. Also, one good thing is that you can sell these GS holdings if you suddenly need cash because these are marketable assets. One other good thing is that you may use GS as collaterals when borrowing to a bank.

The average yield of 91-day tenor for T-Bill is 5.895. You may also check the latest Average Yield for T-Bonds through the link on Asia Bond Online webpage: http://asianbondsonline.adb.org/philippines/philippines.php

One thing that you need to take into consideration is that the interest on these investment is subject to 20% final withholding tax.

Dealers of GS requires minimum investment of P100,000 for T-Bills and P1 million for T-Bonds.

There is also another means of investing, which is through Philippines Foreign Currency Denominated Bonds called ROPs. It is a low-risk investment; however, one issue here is that when dollar plunges on its value on the foreign exchange, your earnings will also decrease. ROPs are good investment for OFW and exporters when this thing will happen.

Investing in Tier 2 notes from Banks are also very promising; however, I will discuss it on my other post in regards to that subject.