Do you know that April 25-30 is Investment Consciousness Week? It is and it also coincides with the 14th founding anniversary of the Fund Managers’ Association of the Philippines (FMAP). This group is very close to the heart of Marvin, my husband, because this is his baby. He was the founding president. Coincidentally, FMAP which is 14 years old now is as old as our “baby” – our youngest son Anton. Happy 14th anniversary to FMAP, a really fun group I had the privilege of spending their convention weekend with at the beautiful Misibis Bay right during the time that a tsunami alert was declared on March 11 after the major earthquake and tsunami in Japan.
In line with the Investment Consciousness Week, I wish to share some thoughts about teaching our children how to invest early in their life. Chapter 6 of my book discusses the many aspects of teaching our children about money matters. It’s the favorite of many readers and mine too. I can go on and on talking about it. But for this article, I wish to just demystify the word or the act of investing.
Of course, I will warn you that to make investing more meaningful, you will have to fully understand yourself in relation to money, your core values and other profound chuvas. In other words read Chapter 6 if you haven’t.
The dictionary defines the verb invest as to spend or commit money or other property for future income. In other words you are setting aside something for future cash inflow. You are delaying gratification.
I’m sure almost all parents have taught their children how to save. There’s the old and reliable piggy bank or the more native alkansiya which has taken many shapes and sizes. Then some parents go one step further and open a savings account for their children where they can put their money taken out from the filled up alkansiya.
But we all know that keeping money in the savings account does not really give you good interest income. I’m not saying that you should not open a savings account for your children. In fact, I advise parents to open a savings account for each child once born. However, I also advise them to take another step further. The amount kept in our young children’s savings account should not be any much more than the minimum balance (usually P5,000 in most banks).
So where to after the savings account? What we did for our children was to introduce them to two options: fixed income investments and stock investments.
Fixed income investments are the financial instruments that provide us fixed yields expressed in interest rates. So if the instrument says 5% p.a., that means that you will earn 5% if you hold it for one year. Pretty simple, straight forward and realiable. You know what your money will be worth at a certain point in time.
On the other hand, stock investments are the shares of stocks of publicly listed companies which we can buy through stock brokers. No one can predict stock prices. But historically, stock investments provide significantly higher yields than fixed income instruments. You invest in stocks in order to participate in the earnings that you expect the company to make. In other words, you become a shareholder or a part owner of the company. So you have a share in its earnings or losses.
In buying stocks, choose the ones whose business you can understand. This is especially important when you introduce your children to stock investment. We started off our children with Jolllibee, ABS-CBN and Meralco because we thought these were companies whose products and services they could experience and understand. Of course, we also looked at their financial statements and we assessed them to be long term investments.
Now you might ask, “But what about us who cannot read financial statements?” The good news is you can invest in the stock market without having to study and choose the companies yourself. You can buy equity funds managed by established fund managers. And that’s the FMAP group. Choose the reputable ones.
How about the risk of fluctuating prices in the stock market? For some who have invested in the stock market at the peak and were burned because of panic selling, the trauma might be difficult to erase. So why should they even get their children’s money into this mess?
I have been investing in the stock market since I started working in 1985, giving me over two decades of experiences. When I started investing while I was an analyst at Far East Bank, I invested using the “daw theory.” I would hear some officemates say this stock will go up daw by 50% or what have you. Then we would briefly talk about it, check out the price and get excited when it would go up and sometimes we would end up chasing the stock. When correction (the stock price going down after a spike) came, I would compute my opportunity loss and say, “Sayang, I should have sold when it was doing ___.” On the other hand, there were times when after selling the stock at a profit only to see the stock price continue to climb, “Sayang I shouldn’t have sold, I would have made this much more profit by now.”
I was not alone in this exercise. Some other officemates and I know a lot others out there are still doing this. That’s over two decades ago and I’d like to think that after giving birth to three sons without anesthesia and making our marriage work for over 20 years, I have greatly matured as a person, and as an investor.
When I was a young mom with our first born, I wanted Marty to learn his ABCs 123s right away and would get anxious at the slightest fever and mosquito bite. In the same way during my early investing days, I would get anxious if the price of the stock I just bought is not going up as expected.
Now, with all my sons grown up, I’m a little bit more relaxed. I know that Marvin and I have instilled the values, discipline and the right foundation in them. In the same way, since I studied the stocks in my portfolio before I purchased them, I am more relaxed if they encounter some price fluctuations because I know that they too have sound fundamentals. I still have to be around my teenage boys to guide them and see to it that they’re in line with what they’re supposed to be doing. In the same way, I also check out my stock investments to see if their respective management teams deliver what they promise to the shareholders. I read the newspapers, their annual reports and if possible experience their products and services.
Over the last two decades, I have come to realize that no one can really predict the stock market. Not even the world’s greatest investor Warren Buffet. And because he knows that he can’t, he doesn’t even try. All he does is to do what he knows best. He studies the companies and buys the ones that meet his criteria and holds for the long haul.
My experience has taught me that the best way to invest is to just do it regularly in the companies that I understand and hold for the long term unless there are drastic unfavorable changes in the companies. By buying regularly, and not being obssessed with my buying prices, I am able to hit both highs and lows of the stock and it shouldn’t matter as long as it remains a good investment. I now know that stock investment becomes risky if I invest based on rumors (daw theory) and when I use short term money in this essentially long term endeavor.
Why is that? I say stock investment should be treated as long term investment even if it is liquid (i.e. you can easily sell it in the market at a certain price), because using your money intended for your monthly expenses or your children’s tuition next school year is really a bad idea. What if the stock price is unreasonably low at the time that you need the cash? You will be forced to sell at a loss! So only use long term money (five years of longer) for your stock investments. Study your needs and have a good mix of your fixed income and stock investments.
My sons are lucky because since they were in grade school, they have been investing. And they have been spared into believing in the daw theory. Because of this they have reached investment levels my husband and I have reached at a much older age. And we are only talking about their investments derived from their savings from their allowance, cash gifts and a few bucks earned here and there.
So I encourage you to get your children started early. Time is on their side. For as long as they are your dependents, their “own” money is essentially long term money. So they have a greater risk appetite, so to speak. If they are conscious that their money is invested in long term assets, they will think twice before they withdraw money to buy some fancy but unnecessary gizmos.
If by now you are still uncomfortable with the word investment because it flies over your head, just remember how it was when you first started using email. You did not have to understand all the details how the internet works. You just had to know some basics like typing, turning the computer and the internet connection (dial up during the early days) on and off. As you went on using it, you learned more and more things about it. Then later on you realized that it was a very useful tool that you became a regular user. In fact, it became a necessity.
There are products out there that can make investing an easy undertaking for you and your children. There’s a new product from BDO aptly called Easy Investment Plan which allows you to invest as low as P1,000 in equity fund or a combination of equity and fixed income. With a low amount of P1,000 you are able to earn a yield as much as the big funds do. The beauty of this is it’s automatic. They will automatically transfer your funds regularly from savings to investment at the time and frequency of your choosing with no extra effort and cost on your part.
Forgive me for the sales pitch but I just think this is a wonderful product. Many times I’ve heard people give their excuses err… reasons why they have not started investing for their future: “I don’t know where to put my money.” “I don’t have the time to go to the bank regularly.” “I don’t have enough cash to start with.” “I started something but then we had extraordinary expenses.” “I’ll think about it then maybe I’ll start something.”
This is the first time this product is being offered at a very low minimum amount. It just answers all the excuses and gives you the ease of implementing the essential elements in successful investing: 1.) Pay yourself first; 2.) Make it regular and automatic; 3.) It’s not how much you earn but how much you save; 4.) Start now! (Click the link below to find out more about it.)
To those who wish to really learn more about stock investing, you can try Citiseconline which gives free seminars. (See link below.)
For parents who also want to wake up the entrepreneurial spirit of their children, you may want to send them to Blue Chip 2011 (A Financial Literacy Program for the Youth 13-20 years old). Last year my three sons were among the speakers of this workshop when they shared their experiences in investing. Unfortunately, this year they will not be available, but do check it out. (See link below.)
I hope I somehow got you conscious with investment for your and your children’s future during this Investment Consciousness Week.
Happy parenting and happy investing!
Rose Fres Fausto
Fund Managers Association of the Philippines (FMAP) – http://www.fmap.com.ph/
Easy Investment Plan (EIP) – http://trust.bdo.com.ph/trustwebsite/quicklinks.asp?pid=736
Citiseconline – http://citiseconline.com
Blue Chip – http://www.randelltiongson.com/finance-entrepreneurship-for-the-youth/