Reasons to Invest in 2011: Pot of Gold at the End of the 2011 Rainbow

PHISIX seemed to have started the wrong way for 2011. Instead of following where it left off in 2010, it started to go down and is threatening to hit a low support of 3600 (in reference to its high in 2010 at 4200ish). PHISIX's drop brought with it other financial institutions, after all, PHISIX has one of the greater influences in the Philippine economy.

Despite the sluggish start, 2011 is still a very optimistic year. In fact, 2011 is said to be a great year for investments. Many people get scared (some even panic) seeing the values go down and as soon as the market starts to go up they miss a great opportunity by staying in the sidelines thinking that the market will go down once again. The fluctuations are inevitable in the stock market, it cannot be avoided. Money is also in fluctuations.

Here are some reasons why 2011 is a great year to invest:

1.) Sell off is temporary. As I have mentioned, PHISIX strongly influences the Philippine economy and the financial institutions within it. The bearish behavior of PHISIX is a result of firms and individuals cashing out their gains after the steep 2010 climb. The sell offs are projected to end as early as late February or maybe the month of March. PHISIX is in a consolidation state as of the moment and a reversal might happen real soon (from going down to going up).

As soon as PHISIX starts to pick up the pace, expect other financial institutions to do as well. The sell off is an opportunity to buy cheap.

2.) Strong fundamentals of the Philippines. Statistics show that Philippines has a lesser Debt to GDP and Deficit to GDP than United States and the European area. In 2009, Philippines has 56.0% Debt to GDP while United States has 83.0% and the Euro area have 74.0%.

Philippines also has the higher growth forecasts in 2011 up to 2015 compared to United States and the Euro area. Philippines is projected to grow by 5.4% in 2011 in comparison to USA's 2.3% and Europe's 1.5%. In 2015, Philippines is expected to grow by 6.0% (in reference to 2010) while USA and Europe will have 2.6% and 1.7% growths respectively.

3.) Philippines is in the midst of an investment boom. Well developed countries have an investments in GDP rate of at least 30% to as high as 50%. Since 1991, the highest that the Philippines have gone was approximately 26% and went on a downtrend since then.

Right now, Philippines is resting on a 16% investment in GDP rate, almost half than the minimum number in well developed countries. What this rate tells us is that there is still a lot of room for growth.

From 2011-2016, (US) $17 Billion worth of public-private partnerships (PPP) are projected. In 2011 alone, 11 PPP projects are scheduled namely NAIA Expressway ($235 Million), LRT Line 1 Expansion ($170 Million), MRT-3 Expansion (P140 Million), LRT-1 South Extension ($700 Million), LRT Line 2 East Extension ($120 Million), Laguindingan Airport Construction ($28 Million), Cavite-Laguna Expressway ($262 Million), NLEX-SLEX Link ($467 Million), Panglao Airport ($120 Million), Puerto Princesa Airport ($97 Million), and Daraga Airport ($71 Million) all worth $2.41 Billion.

The economic recovery is not yet over in fact it said that it still hasn't reached its midpoint.

4.) Valuations are not expensive. Because the prices of stocks in the Philippine Stock Exchange are falling, people could invest in bargain price. The current price values of stocks doesn't reflect the real value of the company or the stocks themselves and most of them are undervalued right now. They are cheap and they've got a lot of room to grow.

Investments carry risk with it but risk could be minimized. The greatest risk in investing is not doing anything at all and playing safe thinking that you might lose your money. The financial industry is projected to do very well as soon as PHISIX resumes an uptrend so shop around for mutual funds, UITFs, bonds, and stocks because they will definitely do good in the next few months. Though other sectors are expected to do good as well, these investment opportunities in the financial industry are way simpler and convenient compared to other investment opportunities. Quite ideal for a typical Juan.

Banks vs Mutual Funds

The money market isn't as complicated as we think it is. Unfortunately, our very limited knowledge results to pessimism towards finances and investments making it complicated and blocks us from great opportunities that would make our money grow. Among the very common reasons that keeps a person from investing are the effort and knowledge required, the capital needed, and simply the fact that trust is very hard to give these days.

Banks are the most popular financial institutions. Talk about money and most people would think about banks. Why is it popular? Because it directly answers all concerns. Banks are easy, somebody who doesn't know how the financial industry works could put up an account, the amount needed to open an account is minimal, and banks have very good credibility.

However, banks isn't what we think it really is. Don't get me wrong, I'm not saying that banks are bad but in this generation, banks are no longer the best places to put money in. Money doesn't technically grow in banks because inflation rates are higher than bank rates and the rates of loans are higher than interest rates. Isn't it ironic that if you deposit to a bank you earn just a max of 1% and when you loan you'll pay at least 4% interest rate? You're borrowing your own money and pay even more. Banks are smart, they know how to make money. (I said smart, not evil)

A lot of people failed to see this picture thus they think that by putting money in the bank they are saving, and tragically, some even think that they are investing (yeah, tragic).

In order to save and invest efficiently, there are some things to consider but everything boils to just one thing: make the value of your money grow. Be aware that increasing the value of your investment is not letting your money merely earn any interest. Here's an illustration:

Let's say you have a hundred pesos right now and you deposit it to a bank earning an interest rate of 1% annually and the inflation rate is 4%. After depositing money in the bank, you ate at a restaurant a meal worth P100. A year after, your money earned 1% interest and becomes P101. You withdrew it and you went to the same restaurant to eat the same meal. To your surprise, the meal now costs P104!

How did such meal become P104? Because of the inflation rate your money lost roughly 3% of it's value. See? Your money earned an interest but it's value never went up, in fact, it lost some of it's value because of inflation.

In order to increase the value of your money or in order for it to earn a real growing interest, it should beat inflation and other liabilities that could pull it's value down.

One of the best ways to invest is through mutual funds. Mutual funds are pool of money coming for different investors/savers that are invested in different securities such as stocks and bonds and are handled by professional fund managers.

Just like banks, mutual funds answers the same concerns. It is easy, it doesn't require much to open an account, and it is credible as well. Opening a mutual fund account is basically just the same as opening a bank account. You fill up the necessary forms, provide the requirements and amount required to open an account, and you can let your money/investment sleep for 10 years.

Mutual funds could give annual returns of at least 12% (conservative estimation) annually, leading bank interest rates by tenfold. Actually in reality, mutual funds could give returns like 30% or as high as 50% annually which is more than enough to outdo inflation and banks.

But what's the catch in mutual funds? Mutual funds are considered as investments and not savings and they aren't insured by PDIC. The risks are higher in mutual funds in comparison to banks but the potential gains are far greater. Another thing is that mutual funds doesn't have a fixed interest rate or gain. Mutual funds depend on the market behavior thus if the market is down, mutual funds goes down as well and vice versa.

How good could mutual funds really be? PhilEquity, recognized as the oldest mutual fund company in the Philippines, started in 1995 with a net asset value per share (NAVPS) or price per share of P1. By the end of 2010, PhilEquity's NAVPS rose above P20. In 15 years, PhilEquity's value went up by 2000%. No bank could give a gain like that in less than 2 decades.

Mutual funds are starting to gain popularity among the people. Experts suggest that mutual funds are an ideal replacement for retirement plans, educational plans, and savings. Some of the companies that are offering mutual funds in the Philippines are PhilEquity, First Metro Asset Management (subsidiary of Metrobank), United Fund (Cocolife), PhilAm Asset Management, and SunLife Financial.

Both still serve different purposes. Banks are best for emergency funds because they are very accessible. But should you go for some serious gains, take mutual funds into consideration.

The financial industry is a very vast topic to consider. There are other investment vehicles that could also really give great gains (in fact, even more than mutual funds) but considering it's simplicity, mutual funds is definitely worth the nod. It is basically an effort free investment. That's "easy" money so to speak.