Below is a good read article from
Inquirer Business authored Efren Cruz.
It was Sir Efren who conducted the
first two days of the finance program I’m currently attending now.
With TDY having risen ceiling in two consecutive
trading days (do you think it’ll rise the third time tomorrow?), let’s sit back
for a while, sip your coffee (HAHA) and welcome bonds into our investments.
Have fun investing!
PS1: Make sure
you’re part of our private Facebook group – Investing in the
Philippine Stock Market – Tips and Tricks!
PS2: Grab your chance to
have the full version of Investing in the Philippine Stock Market for
beginners! Get your copy here!
PS3: If you
want to be an affiliate of Bo Sanchez’ Truly Rich Club, giving you an
opportunity of a passive income, you can check it here! Join the club here!
 |
| Photo credit |
***
Question: CNBC cable channel has a scroll listing Philippines 10-year bonds at 7 percent or 8 percent. Are there such bonds?Are they Government of Philippines bonds? How does one buy them? —Thomas
Answer:
BEFORE
we answer the question, let’s talk about investing in general and then bonds in
particular.
Some people say investing is age-related. To a certain
extent this is true. The older we get, the less time we have to recover from a
loss. Thus, we tend to be more conservative with how we invest our hard-earned
and limited wealth the older we get. So does this mean that rules of thumb like
the “100 minus your age rule” are to be followed to the letter? The “100 minus
your age rule” says that the difference between 100 and your age represents the
percentage of your portfolio that should be invested in stocks.
Rules of thumb give you wisdom in bite sizes. But
blindly following rules of thumb can sometimes get your “thumb bitten off.” If
we were to take the “100 minus your age rule” literally, what advice can we
give to the current oldest man in the world who just turned 114? And even if we
are just talking about an 80 year old, should that person be 20 percent invested
in stocks? Having seniors who are aggressive and living in the Philippines
would indeed be few and far between.
There is a rule in investing, which is more like a law.
Risk goes up the higher the potential return and the longer the time an
instrument requires money to be invested. Looking at the three major categories
of investment instruments, these could be ranked from the lowest to the highest
risk levels as follows: money market, bonds and stocks.
But what is a bond in the first place? A bond
represents the debt of its issuer. The issuer can be a company or a government.
Typically, the issuer of the bond pays interest periodically each year and
repays the original amount invested in the bond on the bond’s maturity date. I
didn’t exactly catch the CNBC scroll listing but I am sure they were referring
to bonds available in the Philippines.
There are also zero coupon bonds where the issuer does
not pay interest during the life of the bond. Instead, on the bond’s maturity
date, the issuer pays an amount that is higher than the original amount placed
by investors.
Bonds can have a fixed maturity or be perpetual, thus
behaving more like stocks, which also have no maturity. But one thing is sure
and that is bonds are long-term investments.
In the Philippines, bonds are currently issued in
pesos, US dollars and euro’s. RoPs (Republic of the Philippines) refers to the
US dollar-denominated debt of the Philippine government. They are traded
locally and internationally. A recent addition is the Global Peso bond of the
government that is also traded locally and internationally.
One thing great about investing in bonds in the
Philippines is that they can be tax-exempt provided their original maturity is
not less than five years, that the bonds are issued by banks, that the investor
of the bond is an individual and that the investor holds on to the bonds for at
least five years. Individual investors can enjoy tax-exemption with bonds
issued by non-banks provided they invest in these bonds through investment
management accounts (IMAs) or living trusts (LTs). Now where can investors get
a hold of IMAs and LTs? Why through the trust departments of banks that hold
Bureau of Internal Revenue rulings that their IMAs and LTs, when invested in
bonds of non-banks, are tax-exempt. Please note that there are minimum
investment requirement for IMAs and LTs.
But what about buying bonds directly? Bonds in the
Philippines are bought and sold through SEC-licensed and Philippine Dealing
Exchange (PDEx)-accredited brokers. For a complete listing of these brokers,
log on to pdex.com.ph and click on “Home,” “Trading Participants” and “Public
Market.” You can also find the latest bond prices in this site. Bonds that are
not traded on PDEx can be bought from and sold by banks.
Now, should bonds be part of your investment portfolio?
Bonds present a great way of spreading the risk in investing. They are
relatively safer than stocks and provide higher returns than money market
instruments (e.g. time deposits and treasury bills).
How much of bonds at what age? That depends on your
prevailing investment return objective and risk preference. There is no rule of
thumb here. Plus there is more to bonds than meets the eye. This column is not
intended as a recommendation to buy or sell securities. So do ask a financial
adviser for help.
Happy investing.
Efren Ll. Cruz is a registered financial planner with
the RFP Philippines. He is author of the bestselling books, “Pwede Na! The
Complete Pinoy Guide to Personal Finance” and “Pwede Na! The Complete Pinoy
Guide to Retirement & Estate Planning. For information about the RFP
program, visit www.rfp.ph or e-mail info@rfp.ph
