And a Meadow Lark Sang..

"The child whispered, 'God, speak to me'

And a meadow lark sang.

The child did not hear.

So the child yelled, 'God, speak to me!'

And the thunder rolled across the sky

But the child did not listen.

The child looked around and said,'God let me see you'

and a star shone brightly

But the child did not notice.

And the child shouted,'God show me a miracle!'

And a life was born but the child did not know.

So the child cried out in despair,

'Touch me God, and let me know you are here'

Whereupon God reached down

and touched the child

But the child brushed the butterfly away

and walked away unknowingly.

Ravindra Kumar Karnani

(This poem was originally written in the Hindi language.)

A Case for Diversification

Imagine a company that is so large and successful that it was ranked 7th on the Fortune 500 list in April 2001, This company has a management team that is so admired that the CEO is frequently featured in business media publications as the epitome of a corporate titan. The firm was ranked very high on Fortune's list of the most admired companies and was ranked first in "quality management" in a vote by its peers.

Given this corporate credential, will you invest in this company?

If you did, you have just assumed a type of risk that can never be diversified, a risk specific to a single company, a single security risk, an unsystematic risk.

Epilogue: In a matter of months in the late 2001, the stock price of this company plunged by 99%, from $83 per share to $0.50/share, this company is ENRON.

I think one of the most relevant "benefit" we get from investing in a equity fund is that our exposure to the stock market is not limited to a few stocks, a single investment in an equity fund immediately spreads out our funds into a basket of select stocks effectively diversifying our equity exposure.

It is however sad that a lot of potential investors are turned off by the so called fees charged by equity funds as the typical "initial expense" of investing in a fund ranges from 1.5% to 6%, one way to look at this is:

Would you rather pay 0.5% to 1.5% to purchase a "blue chip stock" or pay a higher 1.5% to 6.0% for investing in an equity fund that gives you the benefit of diversification?

*Sample Portfolio of a Philippine Equity Fund

Disclaimer: This is not an endorsement that equity funds are superior alternatives to direct stock purchases, i am just illustrating the benefit of a diversified stock portfolio for investors who would not have the time nor inclination to continuously monitor their own stock portfolio, please consult your financial advisor for proper guidance.

When is the best time to start investing?

START TODAY!

Your Financial Plan Should Articulate Your Future Intentions

As we learn to plan for our future, a financial plan is very useful in laying the foundation of the things we need to do and hopefully accomplish, it serves as our guide as to how best to manage our present finances so that we would have enough resources to fund our future goals. This is after all the ultimate goal of prudent financial planning.

One useful and practical approach to make our financial plan more compelling is to articulate our future intentions, I have always emphasized that finding “meaning” in the immediate sacrifices we are making will make it more likely for us to stick to our plan.

Let us say one of my immediate goals is to have an emergency fund of Php 20,000. It would help if we articulate at least to ourselves the benefit of having such a fund, for example; having Php 20,000 set aside will ensure that my household expenses will be covered for a month if in case I lose my job or you may say that the Php 20,000 will ensure that you have enough to cover any minor medical emergencies.

For longer term goals of retirement for example, having a fixed peso picked from the air is not enough, you may say you want Php 10 million or even Php 50 million as retirement fund, without visualizing and articulating how the Php 10 million will benefit you may cause you to abandon your plan after a while, remember “ningas cogon” (a Filipino idiom that says we are only good at starting something...), a financial plan and the action of planning is a work in progress, it takes time for it to come to fruition, and the longer the wait, the more likely is the chances of abandonment.

I need to achieve a retirement fund level of Php 10 million for my retirement at age 65 because: at 4% p.a. interest, this would give me around Php 33,000/month to support my household expenses after retirement, having this interest income will also ensure that I don’t have to depend on the generosity of my children/relatives and I would still retain my dignity as an independent, self-sustaining member of society.