HOW TO AVOID AN INVESTMENT SCAM

My favorite segment in Kwento Disyerto is the financial sharing with Mr. Armand Bengco of Colayco Foundation for education and KSKCoop.

Last Fridays’ topic was how an OFW can avoid being a victim of a financial scam. We all know that the OFW’s are constantly targeted by different financial scams. Be it an old style or new style of scam, the OFW is always vulnerable to this. So how can an OFW really tell that an investment is legal or scam?

According to the informal report from the Securities and Exchange Commission (SEC), as was shared by Mr. Armand Bengco, from 2001 up to 2007, seventy billion pesos (P70B) have been lost due to the different investment scams in the Philippines. During that same time the mutual fund industry in the Philippines is also worth P70B. This however doesn’t mean that the amount of money that has been lost due to the investment scams has been shifted to the mutual fund industry. This only implies that there are a lot of legitimate investment schemes and there are also a lot of investment scams out there. What we really need to do is to be investigative when it comes to any investment scheme that comes our way because intentional or unintentional we may fall victim to these scams.

The most popular among the investment scams is the networking or multi level marketing (MLM). This doesn’t mean that all MLM or networking is a scam. There are also legitimate MLM or networking companies. Multi level marketing is a marketing scheme that a certain company uses to promote and sell their products, which is commonly known as direct selling. Mr. Armand Bengco uses Avon and Tupperware as one of the good example of this direct selling company. Their product is distributed by the agents through direct selling and in return the agent earns their commission once the product is sold. Also be reminded that once you join the MLM or networking company, this doesn’t mean that you already have an investment or a business as what most MLM company claims for their members.

Since the MLM have prospered, a lot of networking companies have come into play. The first indication that you need to check before joining a certain networking company is how you can earn your commission. If you are earning your commission by selling the company’s products then it is legal, but if you are earning your commission through the number of your recruits then it is already illegal. This is commonly known as the Pyramiding scheme. The value of the product is usually disregarded with this kind of scheme because you can only earn your commission as long as you are actively recruiting people to join.

Another example of investment scam that doesn’t use direct selling or MLM is the Franc Swiss. This investment scheme uses a website as the product. You have to deposit ten thousand dollar in order to join and you are promised to earn 5% of your investment daily. Because of the high return from the investment a lot of popular showbiz personalities and basketball players fall victims to this scam. And the saddest truth, again as Mr. Bengco says, with this investment scam is you won’t really be able to get back your investment. During the pioneering stage of this scheme, they are giving the daily interest income of the investment. This is a common trick in order to persuade the other would be victim to join. And take note of this, the victim is easily convinced to join because the one offering to them this kind of investment is their colleagues or relatives loaded with copies of paychecks, pictures of properties and the like as a proof of their income.

Here is one important reminder that Mr. Armand Bengo stressed and everyone ought to remember at all times. Once you are offered of an investment scheme which is not MLM, you need to ask first for its license. Most of the time they show the DTI or SEC registration only which is not enough, because that SEC registration is only a birth certificate of the company. It is only the certificate of incorporation. What you need to ask for is the company’s secondary license, also issued by SEC, that allows them to get an investment. If they can show you one then you are somehow assured that this is not another investment scam.

Another point of stress from him is to make sure that you really understand what you are investing in. Before you invest your hard earned money, see to it that you really understand how your money will grow through that investment scheme. Don’t invest just because other people say so, or your relatives, friends and colleagues say you invest. They may have been a victim already and you are about to join them unknowingly.

Also in order for you to understand how your money will grow, you need to check out the underlying asset of your investment. You don’t have to be carried away when the one offering you an investment says that your money will earn a high percentage or will double in a short time. Remember, when it’s too good to be true probably it’s not true. You better ask the one who is offering you an investment this question; “What is the underlying asset of this investment scheme?” He must be able to explain to you the underlying asset of the investment that he is offering. If not, then it is advisable to be cautious and don’t jump into that investment. For example, if you want to know what is the underlying asset of the mutual fund? The underlying assets of the mutual funds are the shares of stocks of big companies.

UNDERLYING ASSET

1. The physical and financial asset to which a security holder or a class of security holders has a claim. An analyst may believe that a stock is underpriced on the basis of the value of the firm's underlying assets and the potential earning power of those assets.

2. The asset that underlies and gives value to a security. The underlying asset of a stock option is the stock that the option can be used to purchase. Likewise, the underlying asset of a convertible bond is the stock for which the bond can be exchanged. The market value of a security is directly affected by changes in the value of any underlying asset into which it may be exchanged.

Again take this another piece of advice from Mr. Armand Bengco, “When you invest, invest with a purpose. Investigate first before investing. And always look only for the legal ways when it comes to investing.”

For more investing lessons you may want to visit www.colaycofoundation.com, www.kskcoop.com

INVEST IN YOUR FINANCIAL EDUCATION

Today I would like to share to you another thing that you can do with your savings. Aside from using your saving in acquiring assets that can create for you a passive income, you can also use your savings by investing into your financial education.

Why financial education?

Before I answer that question, let me tell you about an ebook by Bro. Bo Sanchez entitled “My Maids Invest in the Stock Market”. Though I am already investing in the stock market, I found this ebook so inspiring because even Bo’s house maids were able to invest in the stock market. You might ask, how is it possible for a house maid be able to invest in the stock market? Who thought them about the stock market?

My friend, that’s the financial education I am talking about. Those house maids invested in their financial education. They were thought to set aside a portion of their monthly income and they invest that money into the stock market. Since they are working for Bro. Bo Sanchez, as a house helper, they are receiving personal coaching from him during their weekly meeting.

Now let’s go back to that question why financial education? Why invest in financial education?

Investing in your financial education means setting yourself financially free. Being financially free means spending more time with your family. Wouldn’t it be fine if you can manage to spend more time with your family? No, I’m not talking about spending time with your family during weekends but spending more time with them at anytime of the week.

Investing in your financial education means to can foresee yourself retiring not dependent to your pension or dependent to your children.

I do wish I can give you more answer to that question but I would like to encourage you to discover it by yourself on November 13, 2010, Bro. Bo Sanchez will conduct a seminar on How to Become Truly Rich. Through this seminar, you will discover how you can start investing in the stock market and plan for your retirement. And not only that, should you decide to join his Truly Rich Club, he will guide you step by step as you start making the stock market as your piggy bank. Wouldn’t that be a great deal that is rarely to be found this days?

You can have a continous financial education through Bo’s ongoing coaching as you grow financially.

Oh wait a minute, you might not be able to attend because you are working abroad. How about giving it as an early Christmas gift to one of your relative in the Philippines. For sure it will be more valuable than giving them the top of the line gadget this Christmas. Be reminded of this, financial education priceless, it cannot be taken from them. It will stay with them and it is their gateway to financial freedom.

So don’t you think its about time to invest in financial education?

ASSETS AND LIABILITY

In my previous post CREATE PASSIVE INCOME I shared to you how you can create passive income by acquiring assets. Now I will be sharing about assets and liability.

What is asset and what is liability?

Asset as defined in Wikipedia – In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset. Simply stated, assets represent ownership of value that can be converted into cash (although cash itself is also considered an asset).

Asset as defined in Investopedia – A resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit.

Liability as defined in Wikipedia – A liability can mean something that is a hindrance or puts an individual or group at a disadvantage or something that someone is responsible for or something that increases the chance of something occurring.

Liability as defined in Investopia – A company’s legal debts or obligations that arise during the course of business operations. Liabilities are settled over time through the transfer of economic benefits including money, goods or services.

Personally I am applying the definition of Robert Kiyosaki for asset and liability. Robert Kiyosaki defined asset as something that you own that brings in money into your pocket, while liability is something that you own that takes out money from your pocket.

Assets and liabilities determine whether we can create savings or not. As Robert Kiyosaki says, the rich people acquire assets while the poor people are collecting what they thought as an asset but in reality they are liabilities. No wonder why the rich becomes richer and the poor become poorer. It is because of a matter of how much they acquired assets and liabilities.

By applying the definition of Robert Kiyosaki for asset and liability we now have a way of identifying an asset against liability.

Following the example of Robert Kiyosaki, I took a piece of paper and draw two columns. I named the left column as Asset and the right column as Liability. Then I start identifying everything that I own whether it is an asset or liability. I included my daytime job in my asset column because it is the main source of my income and therefore it is bringing in money into my pocket. During my first try I found out that I got a lot of liability while my assets are few. With this kind of result I will surely find myself having a hard time creating my savings.

Since I really wanted to create savings for my family, I need to lessen the quantity of my liabilities and at the same time increase my assets. The first step that I need to do is to turn my liability into an asset. An example to this is by using the mobile phone to sell e-load. Since the majority of the Filipinos own a mobile phone and majority uses the prepaid load then it is possible to use the mobile phone and sell e-load. That way the mobile phone that use to take out money from the pocket is bringing in money into the pocket thus it becomes an asset.

Another example is the refrigerator. The refrigerator contributes a lot to a high electric bill. What I did is I sell our refrigerator and we bought a freezer. You might wonder why we did that, because a freezer consumes a lot more electricity than the refrigerator. But the secret to that is we can make a lot more ice than the refrigerator. By selling more ice every day we are able to pay for our electric and water bill. So the freezer becomes an asset to us.

You may also have an idea of something that you own that can be turned into an asset, an asset that can create passive income for everyone who wants to create savings and investment. Please feel free to share your idea here for everyone.

Thanks in advance and happy saving and investing to everyone.

CREATE PASSIVE INCOME

In my previous post I shared to you how you can create savings and what you can do with your savings. Just in case you are not able to read the post you can visit them here HOW TO CREATE SAVINGS and WHAT TO DO WITH YOUR SAVINGS.

Though you can do a lot of things with your savings, I am again stressing that it is best to use your saving to acquire assets that can create for you a passive income. This is applicable only if you don’t have a purpose for your savings.

What is passive income by the way?

Passive income as defined by Wikipedia is an income received on a regular basis, with little effort required to maintain it.

Passive income as defined by Investopedia is an earnings an individual derives from a rental property, limited partnership or other enterprise in which he or she is not actively involved.

Passive income then is a kind of income that you can receive on a regular basis and with little effort required to maintain it. The best example of passive income that the majority can relate to is an income coming from the rental of property.

Before we go on further,and for the purpose of information, there are three kinds of income. First is active income, this is the income that we get as a salary from our work. Second is passive income, an income that we had just defined above. And the third is portfolio income; this is the income from investments including dividends, interest, royalties and capital gains.

We will be talking more of passive income in this topic because this is the easiest income that we can create while we are actively involved with our active income. If you are able to purchase a condo unit through your savings and you have it rented then your condo unit is creating a passive income for you. If you are able to buy a piece of land and built townhouses on it and have it rented then that property of yours is creating a passive income for you.

But what if your savings is not enough for you to build another house that you can use for leasing or renting? You can try to purchase a motorized vehicle or electronic equipment and have them to be rented. However if your savings is not enough to buy a brand new one then you can opt for a second hand but be reminded of the risk in buying a second hand equipment or vehicle. That supposed to be asset might be a liability instead.

Is it possible to acquire an asset even if your savings is only a small amount? The answer to that is “YES”. This is so because an asset doesn’t have to be worth millions or hundreds of thousands. All you have to do is to identify a would be asset that you can use to create for you a passive income. Once you identify it, then the next thing to do is to acquire it and presto it will create passive income for you.

Another way of creating a passive income is through direct selling. This is where the MLM “Multi-level Marketing” comes in. You can earn through your direct sales plus some commissions from the sales of your down lines.

There are so many possibilities that anyone can actually create a passive income for themselves. And with the advent of the internet, a wide range of “passive income opportunities” have opened up for everyone. You can choose to write articles and eBooks and sell them through the internet. Blogging and affiliate marketing as well is another way of creating a passive income.

And I do believe that as time goes by, there will be more and more “passive income opportunity” that will open up for all of us. Just be keen to look around, who knows there might have been so much “passive income opportunity” that’s been unnoticed around you.

WHAT TO DO WITH YOUR SAVINGS

Now that you have created savings, your next problem is what you are going to do with your savings.

If you are going to spend your savings in buying things that is not included in your plan, then that will not be called savings anymore. It can be categorized as expenses. This is because you did save for the future. And that future is actually future expenses. It is like you just delayed spending your money. Instead of spending your money right away you put it first into savings.

Remember in my previous post HOW TO CREATE SAVINGS, you can notice that there is also a 10% portion of your income that goes to “emergency fund”. That “emergency fund” must be responsible for your future expenses or unexpected expenses and not your savings. This is so because your saving must have an appropriate purpose in which you need to use to.   

So what are the possible things that you can do with your savings? You need to check your goal or purpose as to why in the first place you created savings. If you saved for the purpose of buying the top of the line gadget, then do so. If you saved for the college education of your children then that savings must be used for their college education. If you saved for a travel abroad then it must be spent to that. If you saved in order to buy a house and lot then it must be spent in buying a house and lot of your dream.

But if you don’t have a goal or purpose for your saving then you might be facing a problem. Why? This is because you might be tempted to spend all of your savings in order to gratify yourself. After all that is your money and you can do anything you want with that money. You might say to yourself that you sacrificed a lot in order to create that savings and now that you have that amount it is time that you enjoy your money. Though you will not violate any law by doing that, the end result is you might lose all of your savings and you will be back to zero once again. And hopefully you won’t find yourself indebted once again.

There are ways in which you can use your savings wisely, just in case you don’t have a plan or purpose for it as of the moment. Again, as I mentioned in my previous blog “How to create savings”, you can transfer some amount from your savings into your investment. In that way you can reinforce your investment. That will be a big lift most especially if your investment is doing well. Another option is to use your savings to acquire some assets that can produce passive income for you. Those assets, of course will naturally be a part of your investment.

You can also use some part of your savings into charity work. After all since you are now doing financially well, it is also a right thing and proper time to share your blessings. Why I did say that you are now doing financially well? This is because you are able to create savings that only means that you have now extra finances that are at your own disposal. Besides I strongly believe in sharing. If it is possible, do share the blessings, always, no matter how big it is or small.

There may be another option that you can think of with what you can do with your savings. Just use it wisely and avoid ending up losing all of your savings else you will have to start once again from the very beginning.     

HOW TO CREATE SAVINGS

Have you been working for a long time now?

How much did you save so far?

Or does your bank account usually run out of money even before you receive your monthly salary.

We usually set as one of our goals if not number one, is to have savings once we landed on our first job. It is a job well done if we are able to attain that goal and we can see that our savings is constantly growing.

However there are some who wish that they can start to have savings, but they always come short of finances month after month and they even find themselves in debt.

If we continue to aspire to have savings, the most probable result is we won’t have savings. However if we start to create savings, then we can have savings. Savings needs to be created not by other people but by ourselves.
You can create savings, no matter how small or big is your monthly income.
How then are you going to create savings?

The first step in creating saving is to get out of debt, just in case you are in debt right now. You have to pay all of your debt first and once you are out of debt then you are ready to create savings.

Let’s assume that you are now out of debt and you just receive your monthly income.
Divide your income into six portions.

10% of your income goes to your tithe. If you don’t believe in tithing then you have the option of giving that 10% to the needy. There are a lot of people who beg for food or you can choose to donate to the orphanage. You can also donate to foundations or home for the aged. Or you can give it as a donation in times of calamity. The choice is yours.

50% of your income goes to your monthly expenses. This monthly expenses is your budget for food, clothing, bills, transportation and the like.

10% of your income goes to emergency fund. This fund is to be used in case someone gets sick or hospitalized or you suddenly loss your job. An ideal emergency fund is equivalent to the total amount of your six month salary. So keep on funding this emergency fund until you reach that amount. Once you reach that amount you can add the succeeding 10% to your monthly expenses to make it 60%. Or if you can live extravagant with 50% of your income then you can move it to another item such as in savings or in investment.

10% of your income goes to support fund. This fund is your financial support to your family members. This is applicable if you are still single. But if you are married then this support fund can be added to your monthly expenses.

10% of your income goes to your savings. You can open a time deposit account so you won’t be easily tempted to take it from the bank. Once your savings grow, you have the option to move some of this amount to your investment.

10% of your income goes to your investment. This investment will grow and will help you sustain in the future. Your investment will be your retirement fund as well.

So with this step you can start creating savings. It doesn’t matter even if it is a small amount that you can save on a monthly basis. What is important is you started to create savings and it will naturally grow.

Investing Basics – What Are Your Investment Goals

When it comes to investing, many first time investors want to jump right in with both feet. Unfortunately, very few of those investors are successful. Investing in anything requires some degree of skill. It is important to remember that few investments are a sure thing – there is the risk of losing your money!

Before you jump right in, it is better to not only find out more about investing and how it all works, but also to determine what your goals are. What do you hope to achieve with your investments? Will you be funding a college education? Buying a home? Retiring? Before you invest a single penny, really think about what you hope to achieve with that investment. Knowing what your goal is will help you make smarter investment decisions along the way!

Too often, people invest money with dreams of becoming rich overnight. This is possible – but it is also rare. It is usually a very bad idea to start investing with hopes of becoming rich overnight. It is safer to invest your money in such a way that it will grow slowly over time, and be used for retirement or a child’s education. However, if your investment goal is to get rich quick, you should learn as much about high-yield, short term investing as you possibly can before you invest.

You should strongly consider talking to a financial planner before making any investments. Your financial planner can help you determine what type of investing you must do to reach the financial goals that you have set. He or she can give you realistic information as to what kind of returns you can expect and how long it will take to reach your specific goals.

Again, remember that investing requires more than calling a broker and telling them that you want to buy stocks or bonds. It takes a certain amount of research and knowledge about the market if you hope to invest successfully.

MY FIRST SHARE

It’s been more than a year since I started to invest in the stock market. And I should say that the return is satisfactory. My desire for investing started after I read the book “Rich Dad, Poor Dad” by Robert Kiyosaki.

At first I ask around through friends about the treasury bonds.  Getting not so much information about treasury bonds, I shifted my attention to mutual funds. I spend about five months monitoring the mutual funds through the NAVPS website. A mutual fund is a good investment scheme because it is a pooled fund and your investment is managed by the fund manager. This is good most especially if the investor don’t have much information on which share of stock they should buy.

Then through some forum in the internet, the stock market got my attention. I should say that my introduction to the stock market is timely because of the recession. The stocks are all undervalued at that time. It’s like entering into a market and all the goods that are for sale are in a bargain price. Since I am new and I’m not familiar with the real value of the shares in stock market, I did found it hard which share I should be buying. To ensure some profits I bought the company that is about to give dividends. At least through dividend I can have an outright income.

There is a feeling of delight when finally I was able to buy some shares with my initial investment of PHP25k. However, that feeling suddenly change when the value of the share went down the following day and I am losing 3% of my investment. And to make the situation worse, it continue to go down on the first two weeks since I made my first purchase. I am losing around 25% of my investment. There is a panic inside of me. What if the price continues to go down in the coming days?

As I have learned, those losses are only paper loss as long as you keep your share. But something inside of me, is asking, for how long you want to keep it. I have to sell my share right away in order to minimize my loss. But deep inside of me I want to keep my share, somehow the price can still recover, and all I have to do is to wait. In about a month after my first purchase, the share price of my stock started to recover. That’s the only time that I got relieved and I am happy because I didn’t sell my share. I did receive my “dividends” and earned more because my share continues to appreciate.

I treasure that experience of holding on while my whole self is in the panic. As Mr. Robert Kiyosaki says in his book, we need to master our emotion. Stock market sentiment is volatile; when the stock market dives, it sinks with your investments. So is your emotion. If you panic and sell your share then that is the time that you had a real loss, but if you keep your share, you will only have paper loss.

I let my wife to do the stock trading in our other purchase, so she can also experience the same thing that I had felt. And when she is in the panic mode I told her to hold on and do not sell. I shared to her everything that I had learned from Mr. Robert Kiyosakis book. And it’s good that she listens to me.

Now she’s doing most of our stock trading activity in the stock market. I just give her some advice on which share to buy and which share to sell. We also kept on buying the shares with dividends.