“The first servant reported, ‘Master, I invested your money and made ten times the original amount.’ ‘Well done, my good servant!” his master replied. ‘Because you have been trustworthy in a very small matter, take charge of ten cities.’” – Luke 19:16-17
There’s an old saying that “it’s not how much money you earn that counts, it’s how much money from your income you saved. The better it would be if you can make that saved money to work for you.” So we should put the money we save to an investment fund to make that money work for us.
By the time I paid out my debts and have saved the amount I desire for my emergency fund, it is time to make money work for me. I can now start building your investment for the long term.
For investments, earmarked this for my retirement fund in addition to what I will receive from my retirement plan and benefits. The investment instruments that I am considering Unit Investment Trust Fund, Mutual Fund and Stocks. Although bonds and money market are less volatile, they can only earn a very low return that is almost the same as a bank savings account.
UNIT INVESTMENT TRUST FUNDS (UITFS)
Unit Investment Trust Funds are open-ended pooled trust fund from different investors with similar investment objectives. These funds are operated and administered by professional fund managers and are invested in various financial instruments such as money market securities, bonds and equities.
Each UITF is established, administered and maintained in accordance with a written trust agreement or “plan” drawn by the trust entity, approved by its Board of Directors. It is thus apparent that UITFs are highly regulated and trust entities offering these are closely supervised to ensure investor protection.
Open-ended funds don’t have a limit as to how many shares they can issue. When an investor purchases shares, more shares are created. When an investor sells his shares, the shares are taken out of circulation. If a large amount of shares are sold (called a redemption), the fund may have to sell some of its investments in order to pay the investor. The price of the fund is based on the amount of shares bought and sold; and is based on the total value of the fund or the net asset value (NAV).
Mutual funds are almost the same as Unit Investment Trust Funds. The only difference is, if you participate with Mutual Funds, you are buying shares of the fund. With UITFs, you are buying a unit of participation. That means, if you have shares with a mutual fund, you have the rights to vote during the annual meeting of the fund.
A mutual fund can be an open-ended or a closed ended-fund. A closed-ended fund has fixed number of shares and is traded like common stocks. The board of directors (if organized as a corporation) or board of trustees (if organized as a trust) ensures that the fund is managed in the best interests of the fund’s investors and with hiring the fund manager and other service providers to the fund. The fund manager trades (buys and sells) the fund’s investments in accordance with the fund’s investment objective.
Both UITFs and Mutual Funds are good investment vehicles for people who have very limited time and funds to invest on securities. They are already a diversified portfolio of stocks and other investment vehicles like bonds and money market. Before investing, you have to consider the objective of the fund if it suits you. Take note that there are annual fees for the management of the funds. Early redemption fees may occur as well if you redeem your shares or participation after the minimum holding time of the fund.
Stocks are traded openly in the stock market. Stocks are equity investment that represents part of ownership in a corporation, meaning, you are entitled to a part of the company’s earnings and assets. You have the rights to vote during the annual shareholders meeting. To be able to buy your shares of stocks, you must open an account with an online stock broker, then you can place your orders to the traded company of your choice.
Stock investments are for long term investments given that they are very volatile. To offset the volatility, you have to make time to be your ally. Also, you can diversify your investments to a handful of stocks rather than buying shares to a lot of companies, thus spreading your funds too thin. Looking after lots of stocks will also require time to read news, annual reports and other things.
If you have a very little time to spare and too little to invest, stocks may not be the best investment for you.
OWNING A HOUSE OR APARTMENT
In the book “One Up on Wall Street”, Peter Lynch suggests that you buy your own house first before you invest your money in the stock market. This is because in most cases, a house (or an apartment if you are living inside a city) will be a sure money-maker. This was one of the biggest mistakes I made; I did not buy an apartment when I was able to make that investment.
For 23 years, I pay the rent. The money was gone to the drain! If I bought an apartment by the time I first rented, I should have paid out an apartment for me.
You can acquire a house or an apartment for a down payment of less than 20% of its total value. The interest on the loan and the amount you spend for repairing it are tax deductible. If you are renting a house or apartment, the money you paid for is totally gone. If you are paying to own the house or apartment, you are actually investing your money. Over time, the value of the property will increase. If you are lucky enough, the price will double even before you paid out the total cost of the house or apartment.
So while you are still young just starting out to work, look into owning your own house or apartment.
What am I doing now?
I decided last June 2015 to start my investment fund with the PSE Index Fund. See in this section my on-going project for my investment fund.
Last year, I decided to make a study about buying our own apartment. Right now, I am on the final process of my bank loan to pay for the apartment we decided to buy.
Here’s to your success!