Common Financial Misconceptions in the Philippines

Financial literacy is still in it's infancy in the Philippines. The mindset of most Filipinos towards finances are bent towards the opposite way, a way going against building a solid financial foundation. Here are some of the most common misconceptions towards finances of most Filipinos:

1.) The meaning of assets.

What most people think: What they own are assets. Ownership.

What an asset really means: An asset is something that brings money into the pocket.

Two of the most common examples of this is owning a car and a house. A car and a house draws money out fast: fuel, maintenance, repairs, estate taxes, etc.. If you get caught up in the idea that owning these are turning them into assets, you'll be financially drained faster than you could ever think of. What turns these into assets depends on how you use them, not by merely owning them.

Knowing what asset really is could spell the difference in building a strong financial foundation and going down the drain.

2.) The concept of saving.

What most people think: Save to spend

What saving should be: Save to invest

How many people have you heard say that they are going to save up for a vacation, a gadget, or just clothes? Probably a lot. But have you ever heard somebody say that he's going to save up for emergency fund, insurance, and investment? Not that many. Ironic as it may seem but people save just to spend it later on.

Saving is not about accumulating money for something but rather either accumulating money for the rainy days or make money grow.

3.) Spending and ego.

What most people think: Who spends more is richer.

How should it be: Who saves more is richer.

Everybody wants to be rich or at least have more than enough to live a comfortable life. For many people, having more than enough is not enough. They want to show it off and feed their egos buy spending to show everybody that they have money. Spending is a habit and once it goes unchecked, it is stronger than controlling it.

Take care of the needs, put off the wants. Obviously your financial security is more important than feeding your ego.

4.) My grandpa's advice.

What most people think: What worked decades before still works now.

What works now: Information and adaptability

A very common example is putting money in the bank. Many people still think that by putting money in the bank it will grow, worse, some even think that putting money in the bank is investing. Banks work decades before because the interest rates are higher than the inflation rates. Inflation rates are higher tenfold than bank interest rates now.

Gone are the days where money grows in the bank. Several financial institutions are giving better returns than banks. Most of the people who made it big in this generation are people who were innovative and imaginative, not the kind of people who were stuck in the things of the past.

Financial literacy still has a very long way to go in the Philippines. Invest in knowledge, it is your greatest asset.

How Deep Will PHISIX Go?

Apparently the reported 7.3% GDP and 7.2% GNP of the Philippines didn't help. PHISIX continues to go down amidst the positive news. The series of bad news (Makati bus bombing, China's inflation rate at 3.3%, and the chaos at Egypt) have done more damage than the positive news of the Philippine economy.

The graph below shows that PHISIX has already broken its somewhat strong uptrend support at 4000.

Encircled is supposed to be PHISIX's uptrend support at 4000 which was broken early January. Several supports were pegged but to no avail, PHISIX continues to dive deep.

BDO projected that PHISIX might go down to as low as 3600 for the year. 3600 is a really deep dive but with the looks of it, there is a very strong chance.

Now what if PHISIX sinks down to 3600, is it a good thing or bad? It's good if you ask me. PHISIX being down means other stocks are down, their values are cheaper (the value of stocks brings PHISIX down in the first place). It cuts in all angles for everybody because:

[1] It gives the perfect entry to the stock market. Stocks are cheap hence more volume could be bought.

[2] It gives traders and investors an opportunity to cover their losses when PHISIX went down.

[3] It gives a better room for growth. The deeper the hole, the higher the climb. 3600 is deep and there's a long way to go up.

How far will PHISIX continue to go? Nobody knows. But as far as the market behavior is concerned, it will continue to go down. Now is not the right time to invest. Experienced traders and investors say that late February or the month of March is a very good time to invest or trade. It's wise to take such advise.

Mutual Funds: When is the Best Time to Invest?

"When is the best time to invest?". It is a question that I hear almost everyday mostly from people who either are investing in mutual funds or are planning to invest in one.

The idea of cost averaging have captivated many people and in fact it has fostered the mindset that "anytime" is the right time to invest. But for me, cost averaging is not enough.

In cost averaging, time is the most important part in investing. The earlier you start, the lesser the risk, and the greater the chances of the returns. However, cost averaging says nothing about entries and exits which in my opinion are very important. Time and timing are actually the keys in making a successful trade and investment if you want to maximize your profits.

Cost averaging is nothing more than speculation. It is no different in depositing in a savings account. Speculation if you ask me is not investing, it is investing blindly. Though it's true that mutual funds offer way better interests/gains than bank deposits, be aware that mutual funds are investments and investments needs investigation, not speculation.

So going back to the question "when is the best time to invest?", my answer is wait until PHISIX hits a low or in a technical lingo, a support. The Philippine Stock Exchange heavily influences financial institutions in the Philippines be it stocks, bonds, and other forms of securities. If the PHISIX (Philippine Stock Market Index) goes down, almost everything goes down as well.

As of this moment, PHISIX is going down and breaking supports. How low will it go, we still don't know. PHISIX have already broken the 4000 support and is heading down to 3800. The bombing incident in Makati, China's reported 3.3% inflation rate, and the turmoil in Egypt are not helping thus we could expect PHISIX to go further down.

In the graph below, the straight line shows the support that PHISIX is resting to as of the moment. It is inclining going down thus it is indeed going down. So is "anytime" the best time to invest? The chart says otherwise. Does it make sense to invest into something that is going down? I don't think so. Wait for it to hit it's lowest and reverse. You want a bargain don't you? A stock at it's cheapest and more volume?

The lines in the two boxes (next graph) is PHISIX's performance for the past two years. Elliot's Wave Theory says that before a major reversal, a stock goes through 5 waves. The boxed data shows that PHISIX have already gone through waves one to four and wave 5 is possibly coming. Is it good news? Yes indeed. Wave 5 is an uptrend but when will it happen? We don't know. The downtrend could continue and a reversal could happen anytime.

The third graph shows PHISIX's performance from 2002 to 2010. As far as the graph is concerned, PHISIX is still on it's long term uptrend on wave 3 meaning that there is still a lot more room to grow. Wave 2 (downtrend) happened during the so called economic crisis. What comes down always comes back up so after the big dip in 2008, that gave a lot of height to climb in the following years. PhilEquity rode PHISIX's wave 1 as well as the steep climb after the economic meltdown. It's NAVPS grew from barely a peso in 1995 to about P20 in 2010, roughly 2000% increase in 15 years.

Knowing the market behavior is essential in investing. It eliminates false hopes that the market is going up and much more, take away the idea that mutual funds are some sort of magic wand that could give instant riches long term. Knowing that PHISIX is bound to reach greater heights in the years to come is not much of our concern as of the moment. What we should know is when to time our entry to have a good chance of gaining more. Never trade/invest against the trend, you can never outsmart the market.