Kaya mo ba?

We sat down with personal finance expert and author Randell Tiongson to ask him the question: is now a good time to invest? His answer is both yes and no.

According to Tiongson, it is important to consider the following factors first:

• Are you in debt? If your answer is yes, pay your debt first.
• Do you have adequate emergency fund? If your answer is no, then build up your emergency fund first. “Your emergency fund should be enough to cover 6 months of your regular expenses,” Tiongson said.

“Before you even start to think of where to invest your money, ask yourself, can you really afford it? Kaya mo ba? Remember that investment is just deferred consumption. If you’re using extra money then the risks would be lower,” Tiongson explained.

Important factors to consider

Now that you’re certain that you do have some money to invest, Tiongson said you have to consider three things: your objective for investing, your timeframe, and your risk factors.

He said knowing your objective will guide you in deciding where to invest your money and how much, and for how long you need to invest. “A person who is investing in preparation for a wedding will be making different decisions than a person investing for retirement,” he explained.

Your timeframe is the next thing you have to consider. A twenty-something person preparing for retirement will have a longer timeframe than someone in his or her fifties. The older person will have to invest in an instrument that earns more in a shorter period of time.

Third, you must check your risk factors. When you invest, you have to consider the possibility of losing money. An investment that can offer higher yields might come at greater risk, while one that offers lesser yield might be a safer bet. Ask yourself: How much can you afford to lose?

Other risk factors include liquidity and credit risk. To demonstrate, Tiongson cited OFWs who put all their investment in real property. Because of the pandemic, many of them have lost their jobs and are now forced to liquidate these properties at break-even or worse, for a lesser price, if they can even find a buyer. Unfortunately, they are discovering, on hindsight, that they have not invested their money wisely.

“Never get into something that you do not understand,” Tiongson cautioned.

So, is it a good time to invest?

“The answer to that question can be yes, and it can be no. Yes, because prices have gone down. Because of the pandemic, the inevitable has happened. The stock market, which has long been overpriced, is now consolidating and you can now get good quality stocks at much lower prices,” he explained.

“Yes, it is a good time to invest because the economy will eventually recover. Yes, if it’s consistent with your objectives. If you can afford to wait it out 3-5 years then you can wait for the market to recover,” he added.

But the answer is no if your time horizon is short. If you’re investing to prepare for a wedding that will happen next year, for example, then now may not be a good time to invest. “We are in extra-ordinary territory. This is not just an economic slump; this is a global health slump that resulted in an economic slump. If the time horizon is short, like less than five years, then I would say no,” Tiongson said.

“I’ll also say no if your risk profile is low, meaning you cannot take in volatilities. What if the stock market falls further? The problem with some people is they try to catch the bottom, but you’ll never know where the bottom is until it’s over,” he explained.

“Third, what are your objectives? Do you want to speculate? Yes, you can make money but it’s too dangerous, because in the future we don’t know which companies will recover. He said investment analysts are now looking at the moves of the company, where they are going, how they are adjusting, and pivoting. A company may get a very low investment rating based on these,” Tiongson added.

You will need money

Lastly, Tiongson reminds us that the pandemic is not an excuse not to save or not to invest.

“All of these things happening, they come and go. But the fact remains that you will need money when you get old. The fact remains that at a certain time you will be too tired or too sick, and you cannot create money anymore the way you used to. This is the reason why you need to save and invest,” he said.

“The pandemic has proven that having enough savings is important. We will use money, that’s for certain, sometimes more than others, and that’s why we need to prepare. The pandemic has taught us to be wiser with the way we handle money and the way we invest. It taught us not to be too bold, it taught us not to believe that there is a best investment and that you need to learn how to diversify. Because when the time comes, one will perform better than the other; one will be safer than the other,” he concluded.