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

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.

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.