Updated: February 28, 2014
First of all, I’d like to thank everyone for all the great feedback on my previous post, The Story of Mr. Invest Now, Mr. Catch Up and Mr. Wait Longer.
Along with the positive reactions to the story, also came a lot of questions and comments. The most common ones, I will now answer below.
How do I start investing?
The first step towards becoming an investor is to learn how to save money REGULARLY – it should become a habit.
Build an emergency fund first. If you have dependents, then you must get life insurance. Also, having health insurance is very important.
Investing is preparing for the future, but you must PROTECT THE PRESENT. You should be ready for any financial emergency that could come any time in your life.
Once you are able to get into the habit of saving regularly, and have acquired the proper protection. Then the next step is to INVEST IN KNOWLEDGE.
That is, to learn about the different investments out there such as time deposits, bonds, stocks, real estate, unit investment trust funds, mutual funds and many others.
Where did they invest? Is 10% growth possible in real life?
Mr. Invest Now, Mr. Catch Up and Mr. Wait Longer all invested in a mutual fund (it’s said in the story). But the truth is, they could have invested in a UITF or the stock market, and would have had the same results!
The compounded annual growth of their investment was 10% – is this possible in real life? The answer is YES! And I will show you three actual investments that had a CAGR of more than 10%.
Before reading on… be sure that you know what CAGR means. If not then read this first: Compounded Annual Growth Rate Calculation
PhilEquity Fund Inc.
This is a mutual fund by Philequity Management Inc. which started in January 1995. Their office is in Pasig just in case you want to invest in this.
Last January 3, 1995, the NAVPS of PhilEquity Fund Inc. is 1.1103 and as of February 26, 2014 it is now 30.9689. And by using the CAGR formula, you’ll see that compounded annual growth rate of this mutual fund is 18.69% for the past 19 years!
Odyssey Philippine Equity Fund
This is a unit investment trust fund (UITF) by the Bank of the Philippine Islands (BPI) which started in May 2003. You can invest here through any BPI branch.
Last May 20, 2003, the NAVPU of Odyssey Philippine Equity Fund is 96.56 and as of February 24, 2014, it is now 405.99. The CAGR, when calculated, would give us 13.95% for the past 11 years!
Universal Robina Corp
This is a company listed in the Philippine Stock Market, owned by the Gokongwei family. They got listed in the PSE in March 1994. You can invest in URC through any accredited stock broker.
Back in December 1994, the stock price of URC was playing around P15.50 per share and as of February 26, 2014, it closed at a price of P137.00 per share, giving us a CAGR of 11.51% for the past 20 years!
10% IS POSSIBLE
The above are just three examples of investments that grew by more than 10% – and believe me when I say that there are probably other mutual funds, UITFs and companies in the stock market that have performed better.
I used these as my examples because I actually have these investments, so it was easy for me to dig up their historical prices.
So where should you invest?
The answer is you should invest in knowledge first – because when you are already financially educated, you would actually not ask that question.
The story did not account for inflation and market fluctuations
Yes, the story ignored inflation and assumed that price did not fluctuate.
First, the country’s current inflation rate is playing around 4%, which simply means you should put your money in an investment that grows higher than that if you don’t want to lose the value of your peso, which makes our 10% example acceptable.
Second, the risk in price volatility is balanced by the use of COST AVERAGING. By regularly investing every year and staying invested for at least a decade, they are able to ride through the market ups and downs.
Remember that investing is long-term, and that’s exactly what they did… and what you should do as well.
A reader named yuri left this comment (edited for clarity):
For Mr. Invest – it’s good for him to start early and end early. However, did he enjoy his time during the time he was investing? Time and Money are 2 different things. You may have millions, but did you invest for time, experience, friends and family?
I am currently 30 years old and I don’t even have P50,000 in my savings but when I checked my investments (time, experience, friend and family), I know I gain so much for a lifetime.
I have traveled places that are now destroyed by calamities. I have experience things that I can only experience with agility (that comes with age). I have adventures that were shared with friends and family.
In this case, I might choose to be Mr. Catch Up or even Mr. Wait longer, they might invested more money because they have started late. But I hope those times that they have not invested in money, were invested in time, experience, friends and family. Which are priceless I believe.
What if Mr. Invest Now, died early? What happened to his investments?
Just my 2 cents. No harm intended.
If Mr. Invest Now died early, then his investments would go to his heirs, who will then enjoy his legacy. His money will not go to waste because it will be used by his loved ones.
Lastly, life is indeed not about the amount of money that you have, but about the experience of living it.
That’s why you should invest… not because you want more money, but because you want to be able to afford your dreams.
Got more questions? Leave a comment below and I’ll answer them as soon as I can.