Coming from a recent public seminar where speakers like Randell Tiongson, Francis Kong and Paulo Tibig, to name a few, spoke about personal finance, savings and investments, and debt, the new investment program of Banco De Oro (BDO), a Unibank in the Philippines, is something worthwhile to investigate. For one glaring item, you can start your investment portfolio with the aggressive bank at one thousand Pesos a month.
The tag line BDO uses is “Don’t Just Save, Invest.” If you read my previous blog about personal finance, you’ll notice that some paragraphs bear a similar message. That’s because the interest rate for an ordinary savings account has already gone down so much it might even be better to just keep those bills and coins inside a bamboo stalk instead of driving all the way to your bank to deposit or withdraw.
The minimum investment scheme for the BDO Easy Investment Plan (EIP) is 1,000 Pesos per month contribution at a minimum frequency of once a month. For a minimum wage earner fresh out of college, it’s something to consider doing than spending it all on the latest gadget. Heck! If not for yourself, do it for your your future love-interest and your half-dozen kids! Obviously, the more you contribute, the more you earn. The frequency of contribution is either once or twice a month. Of course, you have to open a BDO account where the bank debits the specified amount and transfer that into your EIP. Once your contributions reach 10,000 Pesos, this amount will be spun off and be treated as a regular Unit Investment Trust Fund (UITF) of BDO, documented by a Confirmation of Participation (COP). Each UITF is established, administered and maintained in accordance with a written trust agreement or “plan” drawn by the trust entity (that’s you), approved by BDO’s Board of Directors, and finally approved by the Bangko Sentral ng Pilipinas (BSP or Central Bank of the Philippines). This cycle of spinning off 10,000 Peso increments continue for as long as you are enrolled in the EIP program.
Where will your contributions be spun off? There are three ways of to invest in BDO’s EIP program, sequentially arranged according to the risk (low, medium and high) of the trust fund:
- Peso Fixed Income Fund
- Peso Balanced Fund
- Equity Fund
Peso Fixed Income Fund
This type of savings provides a fixed income on your investment, in a combination of short to long-term fixed income securities. Simply put, the returns on your investment come in the form of fixed periodic payments and the eventual return of principal at maturity, or in this case when you decide to pull out everything, including the principal amount. Unlike a variable-income security, where payments change based on some underlying measure such as short-term interest rates, the payments of a fixed-income security are known in advance.
An example of a fixed-income security would be a 5 percent fixed-rate government bond where a 10,000 Peso investment would result in an annual 500 Peso payment until maturity when you would receive the 10,000 Peso back. Generally, this type of trust fund offers a lower return on investment because they guarantee income.
Peso Balanced Fund
Some people would call this a hybrid fund because it combines a stock component, a bond component and, sometimes, a money market component, in a single portfolio. BDO describes their Peso Balanced Fund as a fund to be invested in equities and, to some extent, fixed income securities, where the allocation shall be determined by the Trustee depending on market conditions. This fund reflects either a moderate (higher equity component) or conservative (higher fixed-income component) orientation.
A balanced fund is geared toward investors who are looking for a mixture of safety, income and modest capital appreciation. The amounts that such a BDO Trustee invests into each asset class usually must remain within a set minimum and maximum. Balanced fund portfolios do not materially change their asset mix.
For risk-taking investors, an equity fund is the best way to invest your money especially at a younger age where the amount of time you have in your life is longer and, therefore, any ups and downs within that long period balances each other out. BDO aims to grow your equity fund over the medium to long-term by investing in a selection of exchange-listed equities. This is sometimes called a “stock fund.”
Equity funds are principally categorized according to company size, the investment style of the holdings in the portfolio and geography: size is determined by a company’s market capitalization, while the investment style, reflected in the fund’s stock holdings, is used to categorize equity mutual funds. It can target specific sectors like healthcare, commodities and real estate.
Choose the Type of EIP Fund That Fits Your Lifestyle
I’m not a finance guy, never did learn the ropes of the many financial instruments one can use to invest. That’s why I attend seminars like what Randell delivers. To simply the rule to use when investing your savings is to choose the type of risk you’d like to use. As I listed and described above the EIP plans from lowest to highest risk-taking, I think it’s best to put risk-taking in perspective. And to do that means how much time do you have before you’d like to start using or withdraw your investment:
The younger you are, the more time you have to take calculated risks.
Equity Funds run the risk of low and high yields as it puts your money in anticipation of producing high income on its investments. Of course, there is also the risk of bearing lower gains than the amount of money used to buy those equities. But if you began this fund in your younger years, and target to cash-out by your retirement age, the ups and downs of market fluctuations over the course of decades would have balanced out and yielding higher becomes a reality. Doing this by 50 years old and expecting to cash out by 55 is more like gambling; you’re better off in a low or medium-risk equity fund like Peso Fixed Income Fund and Peso Balanced Fund, respectively.
But, like I said, I’m not a financial whiz. This is my layman’s head speaking to you and how I understand the investment plans BDO has put out.
Is It the Perfect Opportunity?
In a nutshell, it is. For 1,000 Pesos a month, BDO is extending itself below the rich, wealthy and famous, ordinary folks like us who not-in-a-million-years would have imagined getting a fund manager like BDO and making our money earn more money.
Unlike private and government pension funds, and pre-need and insurance funds which can only be withdrawn or distributed only upon retirement, disability or death, BDO’s EIP can be used for a variety of your life’s needs like college education, family vacations, personal emergencies and retirement, to name a few.
Another thing is never having the time to learn and constantly monitor which financial instrument is best to juggle your money. Let the Trust and Investment Group (TIG) of BDO do that for you. What it actually does is to place your money in an investment pool (some call it a war chest), a large fund where BDO’s fund managers seek out financial markets where they can take advantage of economies of scale.
This is also a perfect opportunity for the overseas Filipino workers (OFW) that struggle to work outside the comforts of home and the company of their loved ones. There’s a story about OFWs who never owned a credit card before they arrived in Abu Dhabi but was recently jailed in a debtor’s prison for incurring up to $27,000 in unpaid bills. Like what was preached during a recent public seminar on personal finance, OFWs can also follow the rule of setting aside 30 percent of their total monthly savings (that’s income minus expenses) to contribute to their BDO EIP fund; this way, they allow their money to grow over the entire time they are working outside the Philippines while they continue to subsidize their cost of living and that of their loved ones.
Start Your Personal Investment Plan Now
There is much to discuss about BDO’s EIP program. For one, it can tell you exactly where it places your money, like the Peso Money Market Fund, Peso Bond Fund, Peso GS Fund, and others more. They can tell you about when your investment is computed daily, minimum holding periods, settlement periods, and so on. But to gain a better perspective on how you can invest, talk to their fund manager about your current income, monthly expenses, retirement targets and life goals so the fund manager can more specifically determine which type of EIP you should enroll, or even a combination, and how much should you start with. For those living and working outside the Philippines, you can find the nearest BDO partners in the Middle East and elsewhere in the world.
“The key to investing is time.” Funds that are invested for longer periods achieve higher returns; those invested for shorter periods yield lower returns – but there still are returns! However, keep in mind that UITFs are trust products, not deposits, and are not insured by the Philippine Deposit Insurance Corporation (PDIC). It’s a trust agreement between you and BDO that the latter will use every means and way to invest your money properly and achieve the best yield.
Title photo by urbanortigas at Flickr.com
Other photos courtesy of BDO.com.ph
Disclaimer: I was not contracted by anyone to write for Banco De Oro nor have I been or will be compensated for such, in cash or kind. I met Ador Abrogena, Executive Vice President of BDO’s Trust and Investments Group, during a public seminar where he, together with Randell Tiongson, asked me and other bloggers to write about their EIP program.