Marvin and his wife Rose are also in the forefront of the financial education advocacy. Along with their 3 sons, the Fausto’s are role models on how a family can have financial peace and enjoy a deeper purpose in life.

The 2012 Outlook of Mr. Marvin Fausto

We remain cautiously optimistic for the Philippines in general.

Even with the global economic slowdown, the resilient domestic consumption is being supported by steady OFW remittances and outsourcing revenues. To this, I estimate that the economy could grow anywhere from 4-5% GDP.

The financial sector on the other hand will remain very liquid coupled with stable inflation rates and low interest rates —  ideal for investments that is expected to generate employment and sustain domestic demand. Interest rates are expected to remain stable at around 4-5% while inflation also to remain benign at 3-4%.

As for the stock market, the Philippine stock exchange is expected to trade positively at around the 4,800 level. Last year’s reduced Government spending that caused the GDP slowdown, is slowly picking up and is expected to be the driver for growth for the country as well as the listed companies in the stock exchange this year.

Investments will center on infrastructure, agriculture, tourism, and education. Barring any major economic dislocation for our OFWs in the Middle East, US, and European markets, our domestic economy is expected to remain robust for 2012.

Marvin V. Fausto is the Senior Vice President and Chief Investment Officer of the country’s largest bank, BDO and in charge of the Investments unit managing close to P580B under the BDO Trust Banking Group.

Prior to this, he held the position as head of the Trust Banking Group of Equitable PCI Bank from 2002 to 2007 primarily responsible for its overall business and operations. He also held the position of Vice President and Investments Head at Citytrust Banking Corporation. He started his career as an analyst at the former Far East Bank & Trust Co.

After having served as President and director, Mr. Fausto is currently a Board Adviser to the Trust Officers Association of the Philippines, the umbrella organization of the Trust Industry. He was also the Founding President and current Director of the Fund Managers Association of the Philippines.

Mr. Fausto graduated from the Ateneo de Manila University in 1983 with a Bachelor of Science degree in Management Engineering and took MBA units at the Ateneo de Manila Graduate School.

Mr. Fausto is married to Mary Rose F. Fausto, the author of the insightful book “Raising Pinoy Boys” and has three sons, Martin, Enrique and Anton who are one of the country’s youngest investors.

As a personal finance advocate, I and many other advocates have been teaching people on the power of regularly saving and investing. Many of us will use charts and illustrations showing the power of compounding especially if we are doing it on monthly basis. However, there is hardly any vehicle for us to do such investment on a monthly or semi-monthly basis; if there is, the minimum amounts required will marginalize many of us.

I have been writing and speaking about the advantages of pooled funds, especially for long term investing (please check my other blogs on pooled funds). Mutual Funds and UITFs are good investment vehicles for the average Pinoy and one can expect better capital growth in the long term for such instruments. However, Mutual Funds and UITFs have minimum amounts and although they are relatively low, many Pinoys still find it difficult to cough up the initial placement that ranges from P5,000 to P10,000. Further, many of us will start on investing on said pooled funds but will stop making additional placements because we find it inconvenient and we lack the discipline for force savings. To learn more about Pooled Funds visit my previously posted articles: Pooled Funds 1 & Pooled Funds 2

When I received a call from BDO’s Chief Investment Officer Marvin Fausto to have lunch, he said that he has something that he wants to show me that I will definitely find interesting. Since Marvin is a dear friend and one I respect and admire a lot, I agreed to meet him provided he pays for lunch (always a cheapskate I am). Mr. Fausto told me about a new product BDO will be launching, a UITF program that can be deducted from one’s savings account on a monthly or semi-monthly regimen. It was interesting but I didn’t think it was really anything new… besides, there are very few Pinoys who can afford a monthly debit of P10,000. What Marvin said after really caught my attention – he smiled and told me that the monthly deduction can be as low as P1,000 a month and the investor can chose among 3 funds BDO is offering: Bond, Balanced and Equities. My jaw dropped and asked him “really, you guys are willing to let people buy into your funds for P1,000? Wow!” Further, the convenience of auto deduction will be good for many of us who are not necessarily well disciplined in savings.  What I also like is that an investor just needs to go through the initial paperwork one time, no further documents, signatures, Know Your Client (KYC) questionnaires after.

Here’s the beauty of the EIP. If I am a conservative investor, I can opt to go for their Bond funds which are generally low risk investments. If I am aggressive and still have a lot of time before I need my funds, I can opt to be a risk taker and invest in their Equity funds. If I want to be in the middle of the ground when it comes to taking risks, I can opt for Balanced funds. While other banks can offer you UITF funds, I don’t think there is anyone that will let you invest for a small amount of P1,000 per month. Finally, there is a real product that is consistent with what we finance coaches teach, regular savings and investing over a long period of time and this time, even those with challenged incomes can now participate.

Truly, the BDO EIP is a Personal Finance Champion in my view. Pinoys should take advantage of investing through the EIP and other financial institutions should take queue from BDO. To Marvin Fausto, Ador Abrogena, Marily de Vera and the rest of the BDO Trust Department, mabuhay kayo!

Check out BDO’s EIP on their website

Answer: I have been taking note of all the developments worldwide particularly the economic woes of Europe and the United States.  Downgrading banks, debt default scares, increasing unemployment, recession and political instability are becoming so common that many are referring to our present situation as the “new normal.” Egad, it sure feels that all the business and economic developments we are experiencing will result in the rewriting of all the books as we know it. I don’t blame you for being skeptical in investing your money—I would be, too, and I actually am.

‘New normal’

With the United States and Europe so far from us, should we really be concerned? Definitely. Today’s borderless world economy has resulted in more economies being interdependent with each other. The United States, Europe and Japan are the largest of all markets and even if Asian countries have better fundamentals (and yes, the Philippines is definitely included), we will all feel the pinch as we are all covered by the laws of supply and demand.

To simplify, when people start to make less money because of a weakening economy, they will buy less of the goods and services we offer and that will not be good. A weakened economy will usually have a negative effect on profitability of corporations, and stock prices will likewise go down. When economies are not robust, people are also fearful of the future and investment markets react negatively.

Make a killing or be killed

Now back to your question. Should you invest now when we are under the ‘new normal’ environment? Well, the answer can be tricky. There are two scenarios that can happen. First, you can actually take advantage of the low prices of stocks and start bargain hunting. When you properly select blue-chip stocks that are profitable, well-managed and have a lot of good potentials, you can be sure that their prices will rebound when the market starts picking up.

Some prices are now at their lowest in months and buying them may be a good idea. On the other hand, buying stocks today might also be like catching a falling knife if the market continues to plummet. There is always that risk and buying a lot of stocks today with the current market condition is tantamount to speculating. When one speculates, he can make a killing or be killed—that’s just the rule of risk and return.

Personally, I would probably start looking for good-quality stocks that are now trading near their 52-week lows; just make sure that these companies have strong fundamentals and continue to be profitable despite the condition of the economy. However, it is unwise to have a high exposure or a big part of your portfolio invested at this conjecture as the market can continue to go south with no real recovery anytime soon.

Investment options

The whole European situation continues to make people fearful and that will be a cloud over our heads for an indefinite period of time.

You may also want to just invest through pooled funds like the UITF or Mutual Funds and leave all the trading, buying and timing to professionals who are focused solely on investing the funds. Experts actively managing funds can minimize losses during bearish environment and improve gains on bull runs.

If you chose to invest now in the stock market, or at any time for that matter, it is always prudent to look at this asset class as a long-term venture to weed out the volatility, or spread the risk over time. Further, do not be in a hurry to invest the bulk of your funds just yet because when the market does recover, it will not do so overnight and you will have time to re-enter the market when the trends are more evident.

Just a friendly reminder whenever you invest in the stock market or any other investment—consider your investment objective, time frame and risk tolerance first and foremost.

Be wise, stay prudent and be patient.

Originally posted at the Inquirer http://business.inquirer.net/25557/do-we-still-invest-in-times-like-these

Question:

Answer: In my last column, I gave a general introduction of pooled funds, particularly bonds or fixed income funds. I will now discuss other general funds—equities and balance funds.

Equity funds, sometimes referred to as growth funds, are pooled funds invested primarily in equities via the stock market. The bulk of the investments made, say 90 percent, is invested in stocks that are traded by the investment manager. In the Philippines, nearly all of the equity funds are invested in blue chip stocks, or those that are considered premium, seasoned and resilient such as PLDT, Ayala, San Miguel, SM and several banks. The decision on where and when to invest and when to sell is left with the investment manager, who may opt to take a passive approach of buy and hold or an aggressive stance. He may also opt for a combination of the two.

Generally, the objective of an equity fund (also known as stock fund) is long-term growth through appreciation of capital, although dividends may also be an important source of returns. It is believed that the stock market will give the most growth in investment provided there is enough time for stocks to appreciate and that proper trading of stocks are being executed. However, equity funds may also be the most volatile among pooled fund categories, as they mirror the gyration of the stock market.  Equity funds are the most risky among the pooled funds in the Philippines.

The Philippine Stock Market Index or Phisix is the benchmark when it comes to equity funds. I notice that the performance of the equity funds (in UITF and mutual funds) has generally been better than Phisix, that the fund managers are doing a swell job. Equity investing is a good way to hedge against inflation as its potential return should be better than inflation. However, I also have to emphasize that it also offers the most risk.

Balanced funds are funds invested in both equities and fixed income/money market securities. According to Investopedia.com, a balanced fund is “a fund that combines a stock component, a bond component and, sometimes, a money market component, in a single portfolio. Generally, these hybrid funds stick to a relatively fixed mix of stocks and bonds that reflects either a moderate (higher equity component) or conservative (higher fixed-income component) orientation. In other words, balanced funds are combination funds that are designed to generate moderate returns with moderate risks. The funds normally have set limits on investments in asset classes, say a 60-40 mix in favor of fixed-income instruments vs stocks. Some funds have more flexibility …

Complete text found at http://business.inquirer.net/21783/all-about-pooled-funds-part-2

http://business.inquirer.net/10159/know-your-investment-objective-first

Question: I have some extra money that I can invest. What’s the first thing I should consider before I invest?—Raymond Sison, businessman

Answer: It is admirable that you are considering investing your money. The majority of Filipinos do not invest their money and just keep their money locked in savings, which is better than those who do not even save at all.

Before you do anything with your hard-earned moohla, I would recommend that you first consider what your investment objective is. In my seminars, I always tell people that our objectives will determine nearly every action we make with regard to finance. It is paramount that you determine the reason for the investment first and foremost. What is the investment intended for? What do you wish to achieve in making such an investment? Is it for retirement, future education needs of your children, purchase of an asset, or a general fund? Knowing what your objectives are will help you choose appropriate investment instruments and asset classes.

To simplify objectives, one can categorize general purposes of investments as those that will result in capital growth, provide income or both. Certain investments will yield according to your desired purpose. For instance, people buy real-estate properties because of capital appreciation while some people buy them for income purposes. Investment objectives can also change according to one’s situation. Let me use real estate again as an example. When you were younger, you bought a piece of real-estate property because you want to have capital growth. Many years after, say during your retirement years, capital growth is now overshadowed by your need for income and the rent you can get from said property becomes your objective.

Investments in the stock market are generally done for capital appreciation and although it can also provide income through dividends, the general purpose of investing in the stock market is for growth.

Investing in fixed income securities (treasuries, bonds) are made for income purposes as it provides steady flow of interest payments. Even if fixed income is sometimes traded for capital growth, the main purpose for it is still income. An asset class or investment instrument can also provide both capital growth and income at the same time. However, and as a general principle, capital growth and income provision would be relatively diminished for instruments that provide both growth and income. Don’t you just wish you can invest in something that will give you both substantially? Don’t we all?

If you are looking at pooled funds like mutual funds, UITF or unit-linked (variable) insurance, it is very important to first know your purpose or your objective before investing in them. Just like any other investment instrument or asset class, pooled funds can give you capital growth (those invested primarily in equities), income (those invested primarily in bonds) or both (balanced funds).

It is good to first check what your intended purpose for making an investment and then look at instruments or asset classes that is a best fit. Also, investment objectives should not be your only criteria whenever you are choosing where to invest. Other factors are just as important such as time frame and risk tolerance, but let’s leave those for future discussions. To learn more about better investing and learning more on personal finance, let me invite you to my seminar “Steps to Financial Peace” on Aug. 12, 2011, at the Teatrino in Promenade, Greenhills. I will be joined by my friends, Francis Kong, Paulo Tibig and Jayson Lo. You can find out about the event through http://www.randelltiongson.com/steps-to-financial-peace/.

(The author is an advocate of life and personal finance and a director of the Registered Financial Planner Institute (Phils.) and has over 20 years’ experience in the financial services industry. To know more about becoming a registered financial planner (RFP), visit www.rfp.ph or e-mail info@rfp.ph.)

On the other hand, another group of people are now contemplating if it is time to get into the Philippine Stock Market now seeing there is a possibility of growth soon. These people are what we may call ‘contrarian investors’. Wikipedia defines contrarian as “one who attempts to profit by investing in a manner that differs from the conventional wisdom, when the consensus opinion appears to be wrong”. The adage ‘buy low, sell high’ is still the predominant sentiment of many people who are thinking about the stock market.

So, is it time to get into the market?  The possibility of recovery entices one to get into the market now. If the market was as high as 4,500 not too long ago, there is a big chance that it will go back to such a number, it’s only a question of when. When you do enter the market today, be prepared to buy more stocks when the market goes down further, an investment technique that will make you average your investment cost and help you recover better once the market goes up again.

A bigger question to ask is if you should invest in the stock market at all. That answer is really dependent on 3 factors: your investment objective, your time frame and your risk tolerance. You need to discern for the answers to the 3 factors I mentioned. Why are you investing in the first place? Is it for retirement, education needs? Is it to save up for emergency funds? You must determine what the need for the investment is for before undertaking any investment. When will you need to use your investment? Do you need it in 5 years? 10 Years? Or do you need it within the year? Lastly, what is your tolerance for risks? Can you tolerate10 to 20% decline in your capital or you can’t accept any loss of your capital at all? Investing in the stock market is for those who are expecting for higher potential growth over a long period of time. Further, anyone who invests in the stock market should be able to tolerate momentary losses in his investment or what they call paper losses. The stock market is not for everyone but it is a good place to make your money grow over time. Growth in the equities is a good hedge against inflation. Safer investment will typically perform at par or even below inflation rates. In the long run, you will actually loose purchasing power of your money if it does not grow ahead of inflation. In ivestments, we call inflation the “invisible risk” – something we must always be aware of.

My view? The stock market for me is more about time and less about timing. Once you invest in the stock market, you should be prepared to stay for the long haul. While there are people who earn from actively trading their stocks, the investor who has a longer time frame will eventually come out with real growth in his investment and sleep soundly at night. I will write more about the stock market in my future blogs; about individual stocks, equity funds, etc.

Here’s my tip: know your investment objective, determine your time frame, learn your risk tolerance, commit to investing regularly and diversify.

In anything, always remember ‘prudence’ is key.

Prudence is a fountain of life to the prudent, but folly brings punishment to fools. – Proverbs 16:22, NIV

The bullish market is buoyed by good prospects for Philippine corporations and a bullish environment preceded such a sentiment. The market is reflected by sentiments, in reality.

The weakening US Dollar has also resulted to a strengthening Philippine Peso and a 40 to 41 rate by year end may actually be realized. The appreciation of the Peso will definitely have an impact on the huge OFW remittances as well as the exporters segment – both critical components of our economy.

On the other hand, it seems that the Oil prices are rising which will have inflationary impact (rising of prices). The good news is, a stronger Peso will somewhat cushion the rise in oil prices and in a way, help ease inflationary pressures.

My 2 cents.

Volume turn-over was about 4 Billion bucks which is pretty decent but not great. It indicates that many Pinoys are not as invested as they should be and I reckon that a big chunk of those invested are through off-shore funds. A good target for volume would maybe be 10B or more with the bulk being average Pinoy investors so that we can reap the economic impact of a very lively stock market.

While there’s much to celebrate, I wish to remind people that the stock market is really for long term investors and it should be consistent with their investment objectives and risk tolerance.

Further, diversification should always be practiced as this remains to be a really good tool for risk management.  As I read somewhere, one should enter the stock market at the sound of alarms, and leave it at the sound of trumpets — or something to that effect.

Life is short, take some risk — calculated risks; but remain prudent. Happy investing!

For those who are not paying particular attention to the local market, you should. Why? Because it has been jumpin’ jumpin’ for some time now. Just for the month of September, the index started at 3,593.41 and in just a little over three weeks, the index skyrocketed to above 4,100! That’s an appreciation of over 13 percent in less than a month. Here’s more: The one-year growth of the index is unbelievable. As of Sept. 28, 2009, about a year ago, the index stood at about 2,800 and that equates to a surge of about 45 percent in a year! The local market is one of the best performing markets in the world for the said period. The markets crashed towards the last quarter of 2008 with the subprime crisis depreciating the index to a low of about 1,700, down from about 2,500 towards the end of September 2008. The current standing of the market today allowed investors to recoup their losses and still remain positive in their investments—that’s assuming they stayed in the market. I know the market scares a lot of people, me included. As to where we are heading to, one can’t really tell. Is it the start of a bull run or are we in a bubble? Analysts can claim both, but I’d like to believe we are fundamentally sound. However, I will not discount the possibility of a major correction—the laws of economics will always enforce itself on any market.

Before jumpin’ in the bandwagon of investing in the stock market, determine first if this is the right instrument for you. Can you withstand the volatility of the market that can be likened to going bungee jumping? While the market is doing a great performance today, it was not doing so well not too long ago. At the risk of sounding like a broken record—or a CD, or MP3 or iPod or whatever it is they call it nowadays—one must always determine the following: Investment Objective, Risk Tolerance and Time Frame. If you are still unsure about the factors I mentioned earlier, pause and give it further thought. Study more, research more and ask others. Do not just look at the numbers today as past performance is never an indication of future performance. Stop and assess your needs first and be prudent, be wise. “The prudent see danger and take refuge, but the simple keep going and suffer for it.”—Proverbs 27:12, NIV.

Here’s my take on all these: past performance is never an indication of future performance! While historical data can be helpful in determining which investment route to take, I wish to caution the readers not to rely too much on historical data. Many factors can affect future performance like taking too aggressive or too conservative positions in their investment policies. The argument by many advocates of index investing is that they can trust the index better than active managers. Experience in many countries supports such an argument but clearly, the same argument is not the case in the Philippines – another “only in da pilipins” claim we can make.

When investing, regardless of what instrument you chose, always invest according to your investment objective, risk tolerance and time frame. If you are still unsure of the 3 factors I mentioned, take time to find out first before letting go of your hard-earned money. Further, when you do invest in instruments such as mutual funds or UITF (available in Banks), pay particular attention to the fee structure; some funds charge more than the others.

Oh, one more thing (last na!) – whenever you are investing, never invest in something you don’t understand. Take time to learn about the investment which you are planning to take and don’t worry, investing need not be rocket science and try to practice being prudent in as much as you can.

A simple man believes anything, but a prudent man gives thought to his steps. – Proverbs 14:15, NIV.