Investing For Beginners 101: 7 Easy Investments For Millennials To Fund Their Big Dreams Faster

Investing for beginners in the Philippines

As most beginners into adulting have heard many times, working a 9-to-5 day job itself won’t get you rich. While working is important to sustain your career growth, making your money work for you through saving and investing is also a must so you can buy your dream house or car faster than when you’re only relying on a single income stream. 

So if you want to start learning the ins and outs of investing to build up your nest egg slowly but surely, here are 7 easy investments for millennials in the Philippines.

Note: This listicle gives basic definitions of the different types of investments in the Philippines, but does not constitute financial advice. Seek qualified financial professionals’ advice about investing for beginners before making any investments or buying any financial products. All information is accurate at the time of writing.

– Short-term investing for beginners –

1. Time deposit – best for people with low risk appetites

Image credit: Pexels

If you are planning to buy a car, house and lot, or saving up for long-distance travel, you may want to consider putting your initial savings into a bank’s time deposit. Time deposits allow your money to be stored by a bank for a set period of time, which can range from 6 months to 5 years. 

At the end of the agreed time period, you’ll receive the original amount you deposit, plus interest which can range from 2% to 6% per annum. Banks currently offering such time deposits include digital bank Tonik, City Savings, and Robinsons Bank. 

Pros: 

• It’s a low-risk investment, as returns are guaranteed. 
• You can earn slightly higher interest rates than traditional savings accounts. 
• It helps you control impulsive spending habits.

Cons:

• You can’t withdraw your money before the fixed time period ends without incurring an early withdrawal fee. 

– Medium-term –

2. Pag-IBIG MP2 – earn an interest rate of up to 7.65% per year

Image adapted from: Aristotle M. 

To help us buy real estate in the future, Pag-IBIG, or the Home Development Mutual Fund,  is among every Philippine employee’s mandatory contributions. But if you’re already a member of Pag-IBIG and want to level up what you can earn from them, you should check out Pag-IBIG MP2. 

A voluntary savings program, the Pag-IBIG MP2 allows you to earn an average of 7.65% interest per annum (based on 2016-2018 rates) by investing a minimum of P500 and a maximum of P10,000 every month for 5 years. 

If you don’t want the hassle of depositing money every month, you can also deposit a minimum of P30,000 and a maximum of P1,000,000 through a one-time remittance. 

Pros:

• Your money will be handled by the government. 
• Returns are guaranteed. 
• No tax will be imposed. 
• You can invest monthly or by paying only once for 5 years. 
• It’s an accessible type of investment given its low minimum capital requirement. 

Cons:

• You’ll have to apply for a new account after 5 years if you want to continue paying for an MP2.

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3. Crowdfunding – lend money to or buy shares from start-ups or small businesses

Image credit: RODNAE Productions

Owning stocks is a dream for many of us, but it requires expertise that beginners may take time to learn, given that companies offering stocks are big businesses listed on the Philippine Stock Exchange. But if you want to start investing in humbler local businesses instead, you may first do so through crowdfunding.

Not to be confused with donations, crowdfunding allows the public to fund small and medium-sized enterprises (SMEs), such as food franchises, agribusinesses, and gasoline stations, so they can generate income. It’s a relatively new type of investment in the Philippines – the Securities and Exchange Commission (SEC) just released its rules on crowdfunding in July 2019. 

There are two types of crowdfunding considered as forms of investment. Lending-based crowdfunding involves an individual lending money to a company to gain interest, while equity-based crowdfunding includes buying shares from a company to receive profits. 

Investing through crowdfunding is usually held through online platforms. Investors can check out Cropital, for instance, which lets you help smallholder farmers.

Pros:

• It’s an accessible way of funding a business as an investor.
• You don’t need huge capital.

 Cons:

• Returns aren’t guaranteed. Startups or early-stage businesses are risky investments since they may or may not succeed.

– Long-term –

4. SSS Personal Equity and Savings Option (PESO) Fund – allocated for retirement/disability, medical, and general purposes

Image credit: Philippine News Agency 

If you’re an employee with an employer shouldering your regular monthly Social Security System (SSS) contributions, you can level up your savings with SSS through the SSS PESO Fund.

The fund allows you to invest for your retirement, disability, medical, and general needs at a minimum amount of P1,000 per month. A total of 65% will go to your retirement or disability needs, 25% for your medical expenses, and 10% for general purposes that includes education, housing, livelihood, and unemployment. Through the fund, your earnings can earn an interest rate of up to 3.75% per year.

You cannot just withdraw from your medical and general purposes savings any time, though. A maturity period of 5 years needs to pass before you can withdraw from these 35% of your savings. The remaining 65% of your savings can only be withdrawn when you reach the age of 60 or apply for retirement or disability.

Pros: 

• Your money will be in the hands of the government.
• No tax will be imposed.
• Savings are allocated according to a particular need.

Cons:

• Self-employed, voluntary members, and Overseas Filipino Workers (OFWs) are required to pay a maximum contribution for their regular SSS contributions before they can begin saving with the PESO Fund.
• If you withdraw within the 5-year retention period, you’ll need to pay a penalty fee.

5. Variable universal life (VUL) insurance – permanent life insurance with an investment component

For folks who are looking for life insurance and want to try their hand at investing at the same time, a variable universal life (VUL) insurance policy is an option. Simply put, it’s a permanent life insurance policy – providing living, death, and disability benefits –  that comes with an investment component, which is ideal if you don’t want to go through the nuts and bolts of manually investing in bonds and stocks.

You’ll usually need to invest a minimum of P1,500 and a maximum of P3,000 per month for 5 to 20 years when you get this type of insurance, according to MoneyMax.

It has also become a popular financial product over time, so you have many options when choosing an insurance company, such as AXA Philippines, Manulife, Pru Life UK, and Sun Life.

Pros:

• In case of your death, the death benefits that will be given to your dependents will be tax-free. 
• You can withdraw money under certain conditions when you’re in need, such as during emergencies and hospitalizations.

Cons:

• Your investment will not guarantee returns, as the markets’ rise and fall will affect your fund’s value. 
• VULs are more expensive than other life insurance plans, so beginners and those on a budget are strongly urged to do careful research. 
• Insurance and investments may be best separated, so you’ll have more room to maneuver your funds later on. 

6. Unit Investment Trust Funds (UITFs) – best for people who want to begin investing in stocks and bonds

Image credit: BDO Unibank

If you want your assets to be invested into securities such as stocks and bonds, but don’t have the expertise to monitor the market, consider putting your money into Unit Investment Trust Funds (UITFs). These differ from VULs as there’s no insurance component, so they may work for those looking to separate their insurance and investments. 

Handled by professional fund managers, UITFs are pools of investments that give you earnings from dividends, stock price increase, and interest. Popular banks such as BDO Unibank, BPI, Philippine National Bank, and Security Bank are some of the financial institutions that offer retail investors – meaning regular investors like you and I – UITFs.

There are four types of UITFs in the Philippines, each varying in maturity period and level of risk. Money market UITFs consist of trading securities and usually have a maturity period of one year or less and can yield higher interest than your savings account. Bond UITFs consist of government, retail treasury, and corporate bonds with longer maturity dates.

Balanced funds are good for those who tend to be moderately aggressive in investing. They contain stocks, but are balanced with less risky conservative securities. Finally, Equity UITFs consist of a pool of stocks that may include companies such as Ayala Land, SM Prime Holdings, to name a few.

Pros:

• They are easy to begin and manage, especially when it comes to investing for beginners, as you can put in your capital through a bank.
• Professional fund managers handle your money. 
• They’re diversified – the funds acquire securities from various industries. 
• You can start with an initial investment as low as P5,000. 

Cons:

• Returns vary.
• UITFs are not insured by the Philippine Deposit Insurance Corporation. 
• You don’t have shareholder rights, unlike when you directly buy stocks.
• Your fund manager decides where to invest your assets. This may be good for some beginners who don’t have the time to research stocks, but not for advanced investors who like to do their own analysis and stock-picking.

7. Bonds – less risky than stocks

The Bureau of the Treasury issues government bonds
Image credit: Wikimedia Commons 

Bonds may be a big word for some, but to put it simply, a bond is a debt, borrowed by big institutions, usually governments and businesses, that generates interest for investors. 

Considered as less risky compared to stocks, the two general types of bonds here are government bonds, issued by the Philippine government and offered through auction and directly to the public, and corporate bonds, which come from private corporations such as Ayala Land and SM Prime Holdings. 

Fortunately, popular banks in the Philippines offer bonds. So if you’re not sure how to begin, you can consult banks such as Security Bank, BDO, and BPI. 

Pros:

• You’ll generate fixed passive income through the borrower that will pay you predictable amounts of interest. 
• If worse comes to worse, and a company offering bonds files for bankruptcy, its remaining assets will be allocated to prioritize paying its debts first. 
• As their value fluctuates less than stocks, bonds can be used to balance a portfolio, especially in economically challenging times.

Cons:

• Your earnings will be subjected to 20% tax. 
• As companies have different credit ratings, research these carefully. Low ratings may indicate that there are times when they cannot pay interest on time. 
• While bonds are less risky than stocks, stocks are said to produce better returns in the long term. 

Investing for beginners in the Philippines

Dipping your toes into investments shouldn’t be difficult. There are many investment options in the Philippines – from Pag-IBIG MP2 to UITFs – where you don’t need to be on the stressful lookout for complicated graphs showing the market’s fluctuations all the time.

When it comes to investing for beginners, it’s just a matter of knowing your priorities, risk appetite, and weighing out the pros and cons with a qualified financial advisor before you can begin making your money work for you. 

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Cover image adapted from: @pnbph and Aristotle M