From saving to investing

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By Bjorn Biel M. Beltran

There is a silent tragedy happening in the coffers of Filipinos everywhere. When it comes to money, the Philippines as a country is doing very well. The country’s gross domestic product, that is, the total value of goods produced and services provided during a given time, was at 6.4% in the first half of 2017. On the world stage, the Philippines has one of the fastest-growing economies, falling behind only to China and India.

The number of Filipinos with savings accounts are also on the rise. According to data from the Bangko Sentral ng Pilipinas, the percentage of households with savings have increased during the third quarter of 2017, 36.8% compared to the 35.8% recorded in the previous quarter. Of these household savers, almost two-thirds (65.8%) had bank deposit accounts. To add to this, the proportion of those that could set aside 10% or more of their monthly gross family income was higher at 40.3% from 38.6% for the previous quarter.

And yet, when it comes to growing that money, it would seem that Filipinos as a people generally do not know what to do.

Philippine Investment Funds Association (PIFA) President and Philam Asset Management Inc. Chairman Ferdinand L. Berba said that it is tragic that so much of his countrymen’s money is sitting in savings accounts, accumulating interest that is far lower than the rate of inflation.

“When you look at it, the total amount of money that Filipinos have in time deposits and savings accounts is in the trillions,” he told BusinessWorld in an interview. “That’s a lot of money earning nothing. Sitting there and losing value due to inflation.”

Mutual funds, he added, would be a far better way of growing money over a definite period, particularly because the investments are also growing in that time.

Adding to that, the mutual fund industry has been steadily rising on the back of the rapid expansion of the Philippine economy. According to data from PIFA, total Assets Under Management (AUM) in the industry was P276 billion as of June 2017, 12% higher than where it was in December 2016. By the end of August, the number has risen to P285 billion.

“We’re growing now, at least in the last five years of 53% in AUM, faster than the pace before which is only 40.5% from August 2006 to August 2011. That’s the reason why we’re very bullish about the mutual fund industry,” Mr. Berba said.

“Everything rides on what’s happening to the Philippine economy. You know very well that during the last decade, from the time of [former Presidents] GMA, Noynoy, and up to now, [the economy] has been on the upward track. Our country has a steady flow of income (OFW remittances, BPO revenues). It’s just a question of making sure we are spending it properly,” he said.

Mr. Berba added that the Duterte administration’s 10-point economic agenda also helps with this momentum, especially with the ongoing “Build, Build, Build” plans to improve the country’s infrastructure.

“Anyone and anything that has to do with the construction of this infrastructure, and all the related industries that support that [plan], will grow. The effect is that anyone now who is investing should generally make more money. As explained by the multiplier effect, injection of spending creates more income for consumers,” he said.

Meanwhile, First Metro Asset Management, Inc. President Augusto M. Cosio, Jr. said in a separate interview with BusinessWorld that in general, mutual fund providers in the country provide good returns for their investors, making them a solid choice for those wishing to grow their own wealth.

“Mutual fund providers [in the country] are quite reputable. They’ve shown decent performances on returns, decent returns on their funds, and in that sense the industry has been very credible,” he said.

“Unfortunately, the knowledge of the industry is still scant,” Mr. Cosio added, pointing out that barely a fraction of the Philippine work force has any investments in mutual funds. Only an estimated 316,000 individual investors were recorded this year.

“If you look at it in terms of percentage of total population, or people employed or in business, it’s still a small number. We still have a lot to do,” Mr. Cosio said.

Mr. Berba is more optimistic on the matter, as while the number may still be small, there are more individual investors recorded as of August this year of 352,921 accounts compared to last year’s 322,956 individual accounts.

“In the industry, the number of accounts, individuals investing from June last year to this year, there’s been an increase of 8.9%. We’re not just seeing the growth of Assets Under Management because that could be just the same people investing more, so what we look at is both. Our total investments are growing. They’re both growing. We still want more of course but it’s not stagnant. We’re happy. The increase in the number of accounts is complemented by the funds’ market appreciation — which leads to enhanced return to investor,” he said.

Mr. Berba added, “We’re very far off. We’re not even in the million accounts, so you know the disparity. There are a lot of people who save in banks, but not many people know how to invest. But if that trend on the macroeconomic level continues, and if we still continue to push for financial literacy, then we’re positive that we will eventually see that surge.”

Financial literacy would be the key in transforming the Filipino saver to the Filipino investor. As more banks and financial institutions educate more people about how to handle their money, the more likely Filipinos will realize the benefits of investing.

“The challenge is to convince people to move from savers to investors. That’s the gospel that we preach,” Mr. Cosio said.

“The mutual fund product is what we call a push product: that is, somebody has to talk to you and sell it to you. It’s not like a fast food item where if you see the store and you’re hungry you would buy it. Or a consumer product where if you hear or see an advertisement on the radio, TV, or Internet, afterwards you are inclined to buy the product. The mutual fund is a product that somebody has to come to you and convince you to invest,” he explained.

Mr. Berba added: “The best way to prepare young people how to be successful is for them to understand how to be financially well. Barriers to entry have been redefined — minimum initial investment, for some companies has been lowered, enabling a previously underserved segment to invest.”

Ultimately, they both agreed that the entire point of investing in mutual funds, or any kind of informed investing, is to include as many Filipinos as possible in the country’s continued economic prosperity.

“It’s what it’s all about. It’s not just about making money. It’s improving the lives of people. We’re improving the economy. The mutual fund industry plays a small part in all that by channeling what small investors are saving into the investment market. What we’re actually doing is transforming the mindset of Filipinos from being purely indifferent to investing, to people who are consciously imbibing that philosophy of investing,” Mr. Cosio said.

“Five years from now, I’d like to see the day we have millions of account holders in the industry. Then I’ll know we’re on the right track,” Mr. Berba said.

“That’s the core of our business. To really help people become financially well. Making money is par for the course of any company. The core reason you have mutual funds is really your guide to helping people become financially independent,” he added.