Hard Work Should Have Its Rewards
The banks have it good.
Imagine, you have a business where people stand in long lines to give you their hard earned money. They put up with lousy service, pouty cashiers, no chairs, not even cellphone access, knowing that you are just going to give them less than a one percent (1%) return for their money, annually. Yet they do it. And they do it gladly, thinking that they are doing themselves a favor.
Sometime ago, it dawned on me. I am a creditor, and my bank is my debtor. Ergo, I should have the upper hand. Ergo, I should have been waited on hand and foot, treated with utmost respect, wooed, wined, dined. They are, after all, getting my money and using it to finance their various investment schemes.
But that is not the case.
Since then I have seriously, seriously questioned the system (albeit only in my mind).
See this: when I borrow, I get charged at least 10% per annum for a housing loan, 19% to 30% for a car loan, 3.5 % per month for credit card purchases (that’s 42% per annum!). When they borrow, they charge themselves less than 1% per annum. Something is not right.
To think that a lot of the money that they have is from the pockets of poor people who know no better than to put their money in banks.
Okay, admittedly, yes, banks do a great service. They are the barometer of economic stability (or instability). They fall and the whole world falls.
But a bank is a facility and should be treated as such, a temporary parking space for money, and then the money should be put somewhere else so it can make more money for those who are entitled to it – you and me – who worked hard for it. If the money is left to rot in almost interest-free savings accounts, inflation (general increase in prices and fall in the purchasing value of money) would work it’s magic and the money is no more.
This is dangerous. Very dangerous. But few people know, or pay heed.
What to do?
1. Own the bank. Buy stocks of your bank. This way, you would actually get a share of the pie and not be the mere and meaningless “creditor”. Their growth is your growth. Their profit, yours. You will be part of the inner circle (you do have a voice in annual stockholder meetings) and not just a bystander who is left holding an empty bag (or passbook). Please be warned, though, that stocks are usually high risk. Do not do it if you have not studied the market or know how the market works.
2. Invest in their products. They have time deposit accounts and other savings accounts that offer higher interest, or insurance products that you can invest in. Although the gains are at very conservative rates (4% to 8% per annum), it will still outdo the <1% per annum assured interest rate of a regular savings account.
3. You can put your money in the Unit Investment Trust Fund (UITF) of your bank. This includes money market funds, bond funds, balanced funds and equity funds. The gains are not assured but your money has the potential to earn interest that is higher than 8%. A caveat to those who need easy access to their money, though: investment in these kinds of funds should be long-term.
Banks are a piece of the puzzle. It is a means, not an end. Yes, you should still have a savings account and a checking account but you should make your bank a conduit and not a destination.
Know what your bank offers. Ask questions, look for options, be smarter. Move that money sitting there in your less than 1% per annum savings account now.
Be rich,
Issa
Article by Issa. Art by D. Copyright 2009.
Website: www.YouWantToBeRich.com
Email: issa@youwanttoberich.com
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Last week I dropped by this site and as usual great content and ideas. Love the lay out and color scheme. Is it new? Well I really really like it. Email me the theme at joanbm3@gmail.com.
@Joan Thanks! The theme is atahualpa but I will email you 🙂
Stocks are not “usually high risk”, money is made in the stock market by buying and owning outstanding businesses bought at a fair price that suits your book. How can owning Globe, PLDT, MWC, AP and such leading businesses high risk? Buying on price alone is high risk, the most improtant criteria is to value the business, then make a purchase if price is available at substantial discount (a falling market).
What is “usually high risk ” is parking your money in the banks. earning 1 to 2% per annum against 4 to 5% inflation is the surest way to get poor.
In 1998, PLDT (TEL) is available in the stock market at 220 pesos per share , In 2011 PLDT(TEL) paid 221 pesos each share in dividends. so if an investor bought at 220 and never sold, he/she is earning a 100% return on invested capital per annum and at the same time increased his capital by 12 times!( TEL price 2650 Jan 2011 ) a 12 bagger in stock market parlance. a 100K investment earns 100k a year and invested capital now worth 1.2M and change. If however you also bought BW at 82 per share in 1998 ,last traded price 1 pesos a permanent loss of capital of 98.8% . So, it is important to buy outstanding businesses at a fair price than lousy businesses at exorbitant prices.
I agree. You mentioned some of my favorites – Globe and AP. Regarding PLDT, I think it is too high, and I am not sure it will go that higher. But yes, the stock market is one of my favorite places to make good money. Banks, well, BDO and BPI shares yielded me okay returns. But it sure beat what they have given me in return for my savings. But thanks for the tip. I am sure a lot of people will take heed.
Again, I agree. Apart from keeping emergency funds and staving off thieves, those 1-2% banks give do not do much against the 5-6% inflation. People are better off investing their money somewhere – and like you said, stocks is a good option.
Yes, PLDT’s story is classic. A lot of people made a lot of money on it (especially MVP). Imagine being the only telco in the 1980’s. I remember waiting excitedly for a phone line, and when it came, oh boy, it was wonderful. Should have been a no brainer but with the Filipino’s aversion to stocks (many are still afraid even now), I am not sure if a lot of people invested. Same story with Globe and Smart (which is also PLDT), which value are also now in the 3 digits, and which are sure to skyrocket especially with the aggressive marketing/updating those companies are doing. Again, I agree, buying the stocks of outstanding businesses is key. People should just identify the businesses they support – say Jollibee, or Ayala or SM malls – and then have the guts to invest in them. Slow and sure is fine, a P5,000 per month investment is fine, and if they hold on to it and not panic, I am sure they will retire comfortably and happily.