Understanding the Basics of Investments

Investing is a scary topic as a lot of Filipinos have been victims of scams. However, IMG believes that the reason why most Filipinos fail in their investment endeavor is because of the lack of financial education. Financial literacy was never taught in school and IMG has been one of the few companies teaching Filipinos globally in a massive scale about financial education. Today, let us understand the basics in investing.

Understanding the basics of investments
Understanding the basics of investments

Nature is teaching us about money. If we were tasked to collect mango seeds for the next 3 years, after that period we will have a warehouse full of mango seeds. But if we decide to collect and plant those mango seeds, with enough sunlight, water and care, after 3 to 5 years, we will have mango trees. These trees will continue to bear fruit for the rest of its existence at normal conditions. The fruits of these trees can then be planted and grown again to produce more mango trees. Relating these to finance, collecting and accumulating seeds is like saving money while planting and growing seeds is called investing money.
Nature is teaching us about saving and investing
Nature is teaching us about saving and investing

Investing money is putting it in a vehicle that over long-term is expected to gain returns on the invested amount. However, it is highly recommended that before one decides to go into investments, he should be well disciplined enough to have first the habit of saving money. One must first complete his set of priorities following the right financial strategy as investing requires a bit of risks associated with its potential gains. The rule of thumb is always, the higher the risks, the higher the returns. Once the person has completed his financial strategy and having the right financial mindset and habits, he is now ready to venture into other sources of vehicles that can produce wealth.

2 Types of Investments

1. Solid Investments 
These include investments in businesses, properties and profession/education.

1.1. Business – traditional businesses are proven ways to build wealth over long-term. Almost all wealthy people have businesses from Malls (Henry Sy of SM), Food Manufacturing (John Gokongwei of Universal Robina: Jack ‘n Jill brand), Banks (George Ty of Metrobank) and many other business tycoons. The challenge of traditional businesses is the amount of capital in terms of effort, time and money. Not all Filipinos are also inclined or equipped with business skills thus traditional businesses also have its share of challenges.

1.2.  Properties – Real estate is also a good source of investment. Almost all wealthy people acquire properties. Over long-term when the value of the property appreciates, a person may decide to sell it at a higher price for a profit. Other ways could also include developing properties and selling units or houses for a massive profit. Other venues also include buying condominiums and have it rented or converting it into a condotel (condo + hotel) type of scheme and can become a source of passive income. The challenge however with properties is the amount of monetary capital involved.

1.3. Profession – our level of profession or educational background is also a good source of solid investment. Examples include doctors, lawyers, accountant or engineers. Almost all doctors having built a portfolio of patients, having undergone specialization and having built a good track record over long-term can build wealth. Same thing with lawyers, engineers, accountants and other professions. The challenge also with profession is the monetary capital and the amount of time invested in studying and schooling.

2. Liquid Investments
these investments are usually in paper such as bonds, time deposits, special deposit accounts, UITF’s, mutual funds and stocks. Liquid assets from the name itself “liquid” have the advantage of accessibility. It means the ability to withdraw or redeem your investments anytime unlike solid investments that may require you to find a buyer or someone who will rent your properties. Liquid assets also require minimal monetary capital for as low as 5,000 pesos initial opening. The challenge of liquid assets however, is that one must be financial educated to know which investment would fit your individual needs as most liquid investment products are designed differently. Its advantage could also become a disadvantage: example premature withdrawal of your investments when one does not have an emergency fund. Instead your mutual fund account would have been for your retirement fund because of an emergency; one may withdraw it and thus be guilty of malversation (corruption) of funds.

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