Letting others do it for you

It is tempting to zoom through the smooth highway than take the bumpy road less traveled.

It is but natural. When you navigate through an unfamiliar city, your tendency would be to stick to major roads with clear signs and directions, otherwise you wouldn't want to end in a dangerous ghetto or a dead-end dump site.

The same thing is true for first time investing. While you have just hopped in on the steep learning curve, you may wish to let your savings work for you by letting others do it for you--in the meantime. There are many good reasons for entrusting your money to others to invest:

1. You are starting. You have very little idea where to put your money.

2. You have limited time. You have to report to the office daily, or you have call on clients for your direct-selling business.

2. You have limited resources. You have P25,000 pesos which you don't need to spend immediately and you wish that that amount would work for you

3. You don't want to take risks by yourself. That's because you don't have much experience in investing yet.

If I were in that situation I would simply place my money on a unit investment trust fund (UITF) offered by most banks or a mutual fund which you could also avail of through banks. Both work similarly in the sense that your money is pooled along with those of others and invested in financial instruments which are otherwise inaccessible to us, small investors. The difference is mainly on the how they are structured and managed.

While you are at the mercy of the fund manager, you still have some control of your money by knowing and choosing the fund to invest in.

There are basically three types of mutual funds on the basis of where the money is invested:

1. Fixed-income fund. This fund invests only in fixed-income financial instruments such as treasury bills, money-market placements and government-backed bonds and the like. The risk is minimal but the returns are capped.

2. Balanced fund. This fund places its money mainly of income-generating instruments such as treasury bills, preferred stocks and bonds, which are debt instruments issued by corporations and the government,    but a portion of the fund is invested in blue-chip equities or stocks. A typical balanced fund would have 20% in stocks Hence, the name. You would also encounter a growth and income fund which is essentially the same.

3. Equity fund. As the name implies, this fund is tilted towards stocks, and therefore by definition is riskier than the previous ones. The potential reward is you earn more than the average compared to the other funds. The drawback is you could also lose big. I have examined some equity funds and the holdings seldom go beyond 50% stocks, except for a few ones. So it is not really that risky.

While I was searching for actual examples of Philippine mutual funds, I found this list, kindly provided for by another Filipino financial blogger.

You're on your way.