The Ultimate Financial Strategy

Let me share you the best financial strategy I know.

This one combines my two favorite investments: stocks and real estate.

It is based on a positive snowball effect where you save part of your income in the stock market. Let it grow there until you reach enough to buy a piece of real estate.

Once you get an income from real estate, you invest it back in the stock market to let it grow until you have enough for a new piece of real estate.

Because you are re-investing the money in income generating investments, it will be easier to buy new assets as time passes by.

This strategy is simple, logical and will maximize the profits made by the 2 best investments vehicles that made lot of people rich.

How to make Real Estate ownership worth it

In my previous post (http://pinoyfinancialcoach.blogspot.com/2017/09/the-modern-slave-one-with-big-house.html), I mentioned the negative effects of having a heavy mortgage to pay which I related as being the same as modern slavery.

Today, I want to focus on when owning a real estate property makes sense. Here are my thoughts:

1. The first good reason to own real estates is as rental properties. Definitely the best way to make money. It is one of the favorite investment of the super rich. Rental properties allow a steady income with minimal risks. The drawback is the initial amount to be invested that is sometimes out of reach of people. Nevertheless, with strong savings habits, patience and discipline, this can be overcome.

2. If you are sure to live in the same house for 25 years and more. The purchase of house becomes to make sense but only applies for the long term.

3. If you actively buy, fix and sell houses. This business might become lucrative if well done.

Other than that, I don't see other good reasons to own a house. The maintenance, taxes and the selling fees don't make it a very successful investment. The last 2008 housing bubble burst is a great example of how overrated homeownership is deep inside people's mind.

The modern slave: the one with a big house, therefore a big mortgage

Last August, I was able to meet many of my friends. Some of them I haven't seen for a long time.

While talking to them, I noticed the have 3 things in common:

1. They all bought a house
2. These are very big and beautiful, thus expensive

And lastly, they all need to work hard to pay for the mortgage...

It appears that their monthly mortgage is big (reaching half their monthly salary, sometimes up to 75%) and will last for 20 to 25 years. This gives them no choice: they must work hard and long to pay for it.

They are all in their mid 30s. If you add a 25 years mortgage, they'll be able to pay it off when they reach 55 years old which is to me, very long time.

In the mean time, they have to maintain this big house and these maintenance costs are substantial (especially when you have a big garden and a swimming pool).

As Robert Kiyosaki says it best: "your house is not an investment. It's a liability" and I really believe in this saying because I won't like to be obliged to work forever to pay for a house I barely can afford.

In contrast, this is my point of view towards house ownership:

Smart SIM only plan: the best and cheapest postpaid plan ever

I have been a long time Sun user. I used to have the SUN 350 pesos plan which gives me unlimited sun to sun call and text, and 250 free texts to all network. For the longest time, I thought this was the cheapest postpaid plan in the Philippines.

6 months ago, I started to have major problems with my sun line. It was not easy for me to call even if the signal was full and most of the time, I didn't have signal where I live. My friends who are using Sun complained about the same thing.



This is the reason why I decided to change my plan. I looked in directly to Smart because my wife's primary plan is from them. I found this online: the Smart SIM only 250 pesos plan!

This plan gives UNLIMITED texts to all network + 180 minutes call to Smart and Sun + 100 Mb of data.

Since I'm not a heavy caller, I find 180 minutes more than sufficient. In case you need to call many more Smart, Sun and Globe subscribers, you may add Flexibundles that will allow you to save money by buying a bundle of time.

Same goes with the internet in case you are a heavy mobile data consumer.

All in all, I used to pay at least 350 pesos per month on my Sun plan. I believe it's gonna cost me much less now.

You won't receive a free phone with this plan but if you already have your own, this is the best plan ever.

It's hard to time the market. Don't even try.

Here's my experience with the recent Black Monday and how investing in stocks sometimes hurt big time.

I saw my stock portfolio depreciating little by little for one month already. I had some money saved and thought I'd buy more stocks while it's still low. That was Monday morning 9 AM. I entered my buy order on my favorite online broker then let it be.

2 hours later, I wanted to check if my order pushed through. That's when I saw the sea of red numbers all over my screen. Not only it was red, it went down really low. -5% at that time.

I checked again this morning and my portfolio went almost 8% down. All in all, my savings stock profits went almost down since 2 months ago.

I realized that it's so hard to time the market. I thought it was low already and didn't think it could go much lower than that.

I still believe in my financial strategy: buy and hold. I still believe that after a huge market correction like the one we just got, we'll experience a bull run that will lead to new record highs. That's what I experienced with the 2008 market crash. 7 years after, the stocks have reached records highs. I hope we'll experience the same thing again.

As of today, the Philippine Stock Exchange Index is at 6,791 down from a 8,128 back in April. That's roughly a 16% decrease.

I'll review this post next year and compare how the stock market will perform from this point.

Stocks are going down for a big correction, just breathe, don't look and don't stress out

Once in a while, stocks suffer from a major correction. The industry expects this every 5 years.

If you look at it, the major correction was in 2008, 7 years ago. This correction is 2 years overdue.

My advice: don't look at your portfolio, don't panic, don't stress out and DON'T SELL!

Actually, YOU SHOULD BUY!

You need to know that stocks go up and down. Some "experts" will tell you it's because of China if the market gets depressed. They will tell you that China is on a steep decline. The funny thing is, the same experts said the complete opposite last year. They said China is on a steep climb while the US and Europe was doing bad. Can we trust these experts? No.

But they are the reason of these corrections or crash. They just buy and sell based on some news and they always change their mind! They can't keep a good strategy because buying and selling is what they do. It's part of their job. A financial analyst who doesn't advise to buy and sell is an analyst who doesn't make money. So, for any little reason, they'll buy and sell. Remember they make money each time their client make a transaction...

Do you think the company you invested in like Jollibee, BPI and Ayala are being affected by China or Greece's economic performance? NO! They are not so why are
these stocks going down also? Because people don't know what they are doing or they are very greedy...

Let's be smarter than them. Let's stick to our strategy which is buy and hold for a long time so we can finance our retirement.

Look at your portfolio now, take note of it. Check it one year from now and see the difference. I bet you already forgot this correction because stocks go higher and faster after one.

COLfinancial is now selling Mutual funds

Good news for us investors, our favorite Philippine online broker is now offering mutual funds.

Most people don't know what's a mutual fund and what it's used for.

To simplify things, mutual funds pool money in order to buy a basket of stocks. A manager chooses and buys stocks he believes to be most profitable. By investing in a mutual fund, you buy a little bit of all the stocks included in the basket.

Thanks to COL financial, you can now access a list of dozen mutual funds.

I own some mutual funds in my portfolio but there are pros and cons of it.

PRO:

- they are safer because they are more diversified
- they are supposed to be managed by successful portfolio manager

CONS:

- they charge a fee
- you don't have control of what stocks the fund holds
- badly managed funds costs more money to operate
- many studies shows that mutual funds don't outperform the financial market

As you can see, there are more cons than pros but it doesn't mean it's a bad investment. I particularly advise it for beginner investors.

My concerns are more with the fees they charge and how successful is the manager.

Fees range from 1.5 to 3 percents annually. Which means that every year, you must pay the fund 3% of your money which can greatly impact your profitability.

Many studies show that funds underperform compared to the stock market. Mostly because the fees they charge negatively affects the returns on the investment.

I'd advise you to invest in low fee type of funds. They are also called index funds. An index fund is not actively managed so the fund company will charge a lower fee.

The XALSIF is an index fund operated by BPI that invests in the same companies listed in the Philippine Stock Exchange index (PSEi). It's a great way to start investing.

The minimum investment is 5,000 pesos.