Wednesday, June 10, 2009

Beating Inflation through Mutual Fund Investing

Our mother always tell us stories about how they could survive with five peso a day in the old days -- 50 cents for a soda and the rest for food and fare. Now, the same five peso cannot even get us a decent stick of barbecue. One reason for this is inflation.

As a young adult, you wonder how your meager income can help you achieve your financial goals - a roof above your head, education for your children, and a few luxuries. The ever-increasing cost of basic commodities makes a reasonably comfortable future seem like a distant dream. How then can you beat inflation?


If you have modest savings, simply putting your money in the bank is not going to help you beat inflation. For P10,000, commercial banks offer interest rate of roughly 1.6% a year. This is substantially below the 6% - 7% inflation rate expected by the government this year. Directly investing your savings in the stock market also has its own difficulties. What stocks do you buy? When do you buy them? Will my stock investment decisions earn a return higher than inflation?

If you are at a lost as to how you can make your money grow, you should consider investing in a mutual fund. A mutual fund
is a vehicle that allows investors to combine their resources. It is money pooled together from various individuals that are invested by professional investment managers in a diversified portfolio of assets like stocks and bonds.

In exchange for the money you put in, you will receive shares of the mutual funds. The value of the mutual fund shares will depend on the prevailing market price of the underlying assets invested by the mutual fund. If you want out, all you have to do is sell your shares back to the company handling the mutual fund.

When deciding on the specific mutual fund to invest in, you must consider your investment objectives and tolerance to risks. You should also look at the stability of the mutual fund company, the appropriateness of the products, and the expertise of the investment managers.

Check out the list of mutual fund companies in the Philippines and compare their features. Just remember that when you want to invest in a mutual fund, you should think long-term. Most mutual funds in the Philippines require a minimum initial investment amount of only Php 5,000 and minimum additional investments of Php 1,000.

For me, I consider mutual fund as a good inflation hedge.


*Disclaimer: Readers are solely responsible for their own investment decisions and should thus conduct their own research and due diligence and obtain professional advice.

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