Try to Stop Losing Your Hard-Earned Money in Savings Accounts (Philippine-version)

Being too conservative with your money will make you actually lose some of it


In assumption, a simple man or an ordinary working Filipino would typically get his hard-earned money in a payroll savings account. From the payroll account, one could decide on how to use this purchasing power, the Philippine peso(s).

The money-losing strategy starts if one chooses to keep his money altogether in the payroll savings account and assume it will just naturally grow and serve as a good retirement money cushion someday.

The deposit interest rate in the Philippines has remained unchanged since 2015 at 1.59%. Sure, at this rate, the money kept would double at the 45th year anniversary through the power of compounding.

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”

Albert Einstein

Importantly, a solid compound interest result could be achieved in any savings account (payroll and the like) if it has been kept active to avoid unnecessary servicing fees, and that no reduction has taken place from the initial money saved in it.

Why is it a money-losing strategy? Inflation.

The problem lies in the inflation. This is where the money kept in the savings account eventually loses its buying power.

Inflation is the rate at which the general level of prices for goods and services is rising. In the past decade, the Philippines had an annual average inflation rate of 4.1%.

An example, a 10 pesos pandesal bread ten years ago would now cost somewhere between 14 and 15 pesos, or even more in the same panaderia.

Meanwhile, the average deposit interest in the past decade has been at 2.7%.

The same 10 pesos ‘saved’ and held in the savings account in the same ten-year period would now be 13 pesos.

An individual wanting to buy the same old pandesal would have to actually pitch in two more pesos to buy the same bread. As a result, this individual lost 2 pesos over the long-term.

Meanwhile, the Philippines largest bank in terms of assets, the Sy-led Banco de Oro, provides a paltry 0.25% interest rate per annum, and Ayala-led Bank of the Philippine Islands provides the same interest rate in its savings accounts.

Where to safely put the money?

Brought by the recent tax reform plan, more Filipinos would be able to retain more of their hard earned money rather than remitting it back to the government in form of taxes.

This would eventually trickle down to better spending power, and hopefully, investment capabilities.

There is no silver bullet or cure-all in where to put the money and generate far better than the almighty inflation rate.

But the safest would be the Philippine Government Treasury. Treasuries are debt obligations of a national government. These investment instruments barely go bankrupt, unless of course, an entire country goes down economically, and credibility to pay debt has gone out of the window.

There are several different government treasuries fulfilling an individual investor’s needs: Treasury Bills, Treasury Notes, and Treasury Bonds. Treasury Bills usually matures in a year, Notes every ten years, and bonds ten or more years.

Why the different maturities? What does maturity mean?

An individual has certain needs. If he anticipates that he would not need his money and could set it aside for a year, investing in a Treasury Bill may be of best decision. If money would not be foreseen needed in the next ten years or so, a bond or note would be preferable.

The government would return all the capital and interest rate upon maturity. Further, most, if not, all banks offer these treasuries. Since these are government-backed investments, initial investment could be as low as 5,000 Php to as high as 50,000 Php.

No worries, these are GUARANTEED investments.

What are the current Treasury Government Interest Rates?

At the time of this writing, two-year Philippine Government Bond yields (or has an interest rate) at 3.553%. Five-year Treasury bond has a yield of 4.6%, and ten-year Treasury bond yields 4.64%.

An example, a 10 pesos invested at 4.64% Philippine Government 10-Year Bond would become 15 pesos by its maturity.

Should inflation hover around 3 to 4% (as could be conservatively forecasted), a treasury investment yielding more than 4% would be a prudent choice.

If you really intend to create your retirement nest egg, and would not want it to be touched until years from now, investing in government treasuries would surely be smart.

Other options

An individual who seeks higher returns who has a great money-making idea should probably start his own business.

And for those who would rather make money passively and other people work for them should find undervalued companies in the public stock market, figure if it has sound operations and shareholder-friendly management, buy its shares, and hold it for a long-term (years).

These options definitely are riskier but could be more fruitful in return.

Seeking undervalued companies would be a little more of a daunting task, and may serve as another blog in the future.

In addition, only in recent memory that the Philippine stock market has been under a firebrand leader, President Rodrigo Duterte, and outperformed a similar strong leader in the United States.

Successful calls

A couple of good success calls I can reflect on as of this time were Integrated Micro-Electronics (ticker IMI) and Panasonic Manufacturing Philippines Corp. (ticker: PMPC).

IMI was at 5.64 Php when I wrote about it back in July 14, 2016, and now trades at 19.6 Php, illustrating a bountiful 247.5% share price appreciation.

PMPC, meanwhile, was at 6.65 Php in March 9, 2017, and now trades at 13 Php therefore indicating a 97% share price increase.

How to buy/sell stocks in the Philippines?

COL Financial is the broker I use for buying and selling stock in the Philippines. Here is a 12-minute video tutorial by the brokerage.

“My wealth has come from a combination of living in America, some lucky genes, and compound interest”.

Warren E. Buffett

Net worth as of 9/21/2017: $78.8 billion 

Disclosure: I still own IMI and PMPC shares. PMPC was pitched to me by a good fellow investor, Mr. A.T.

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