What do you want to do this summer? Do you want a one week vacation in Boracay?
What do you want to buy within the next few months? Do you want to buy a new smartphone? A new laptop?
What about next year, or two years from now? Do you want to buy a car? Start your own business? Pay that downpayment for your dream home?
It doesn’t matter what you want to do, or what you want to buy, as long as it’s happening in three years time or less, then it’s considered a short-term goal.
And when it comes to short-term goals, these are the best investments where you can put your money in.
Yes, a savings account is technically an investment because it earns interest over time and always better than leaving your money under the mattress.
It’s a great place to put your money for your short-term goals because it’s almost zero risk, with bank closure and inflation as the only reason you’ll lose money (or the value of your money).
When should you invest in a savings account? When your goal is set to less than a year.
Where should you invest? At any financially stable commercial bank so that the risk of bank closure is almost negligible.
What type of savings account should you open? A passbook savings account is okay, but ask your bank if they have similar products that have better interest rates.
Short-Term Time Deposit Accounts
Time deposits are the most popular type of investment among Filipinos, in my observation.
Your money earns at higher interest rates than a savings account in exchange for some liquidity. But just like the former, time deposits are almost zero risk.
When should you invest in a short-term time deposit account? When your goal is set to 3 years or less.
Where should you invest?
Shop around and see which banks can offer you acceptable terms. If you’re looking for the highest interest rates, then rural banks will have the best offer, but understand that they are less stable than commercial banks.
What type of short-term time deposit account should you open?
It depends on your goal. If it’s less than a year, then I suggest a 90-day (or shorter) time deposit. If it’s more than a year, then you can go for the 6-month or annual term.
Low-Risk Pooled Funds
Pooled funds are either Unit Investment Trust Funds (UITF) or mutual funds.
Your money has the potential to earn higher than a time deposit account, but you’re already subject to possible losses if the market goes down by the time your goal deadline comes.
But historically, the value of units or shares in low-risk pooled funds rarely dip unless a massive financial crisis happens in the country.
So if the economy looks good, or even just “flat”, then low-risk pooled funds become a good investment choice in the short-term.
When should you invest in low-risk pooled funds? When your goal is set to 1 year or more.
Where should you invest? For UITFs, you can just go to any commercial bank. For mutual funds, go to any SEC-registered mutual fund company.
What type of low-risk pooled funds should you invest in? The most common types are the Money Market Fund, Fixed Income Fund, Government Securities Fund, and short-term Bond Funds.
There are many others, just ask the bank or the mutual fund company for their products with the most conservative risk profile.
If your investment objective is happening in 3 years or less, then the best investments are the three mentioned above.
Don’t put your money in the stock market and other investments with a moderate or high-risk profile because you might come up short when your goal is due (unless you’re willing to take the risk).
Always remember that low-risk investments are for your short-term goals, moderate-risk investments are for your medium-term goals (3-5 years), and high-risk investments are for your long-term goals (5 years or more).
Looking for a place to start? Here are some suggestions:
- BPI UITF: Short Term Fund
- BDO UITF: Peso Money Market Fund and Dollar Money Market Fund
- Sunlife Mutual Fund: Money Market Fund and Government Securities Fund
- For those in the armed forces and police service: AFPSLAI
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Photo credit: SalFalko
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