Towards the end of the year 2006, the Philippine economy was in a really good shape as it was everywhere else. As a result, the stock market has been going up since the year started. The same can be said of mutual funds around that time. But the most noteworthy of mutual funds was the First Metro Save and Learn Equity Fund. Its 2006 performance was the one that caught my attention to mutual fund investing. I learned that by Dec 22 of that year, this fund has had a year-to-date return of an amazing 65.77%!
Upon seeing this figure, my head spun out of control. I immediately dived into researching more about mutual funds in the Philippines and how I may be able to invest. First of all, I learned what a mutual fund really was. My research told me that mutual funds are money pooled from many individual sources put together to be invested in financial instruments. These financial instruments are basically of two types. They may be stocks of companies sold in the stock market or it can also be bonds issued by the Philippine government or trusted companies.
Stocks are basically shares of company ownership traded in the stock market. While bonds, on the other hand, are debt instruments with corresponding interest rates. The price of a particular stock depends on how investors perceive the company's performance which results to whether or not they increase or decrease the demand for them. This makes the price of stocks fluctuate making it a considerably riskier investment than bonds. Since bonds are instruments with associated fixed interest rates, their value would not change as much. This makes bonds less risky. But as you may have heard the mantra in investing, "the higher the risk, the higher the returns". The potential earnings that you can make from an investment in stocks are much bigger than what you can get in bonds. However, it works the other way around as well. The potential for loss in stocks is much higher as well while it’s less for bonds.
How I Invested in Mutual Funds
Mutual funds which may contain stocks or bonds or a combination of both, make it possible for small investors like myself to invest in these financial instruments. And that's what I did after seeing how good mutual funds were performing in 2006. I bought 100,000 pesos worth of shares invested in stocks. I made the investment thru a deposit to the company's bank account. The mutual fund company in turn provided me with a document stating how many shares belonged to me and the value of each share at the time of issuance. I multiplied these two numbers and got the initial worth of my mutual fund investment. This was slightly lower than the money I initially invested because of fees I paid.
With the shares I held, I watched as the value of a share vary daily through the published net asset value per share (NAVPS). The hope of every share owner is that NAVPS will increase over time so that their investment will increase in value. The year 2007 was still a positive year for mutual funds but it was considerably less than 2006. When the world economy collapsed due to the financial crisis of 2008, stock markets all over the world plunged with it. Since my mutual funds were invested in stocks, my NAVPS went down as well. But all these were just paper losses, which mean that it would not really constitute a loss for me unless I withdraw my investment which will make the losses real.
Earnings from Investment
I didn't feel a particular need for the money I invested and I didn't worry too much about the paper losses either so I kept my money in the fund. In 2009, stock prices started to recover and with it the NAVPS of my mutual fund. I felt that the economy and the market were headed for a rebound that would finally bring some returns to my investment. Unfortunately, I had to withdraw the investment to use the money for my son's surgery. When I withdrew, the total amount I got resulted to a profit of around 10% of my initial investment. Considering my money was invested for three years, 10% was pitiful.
If I had a choice I would have left the money to grow in the mutual fund. But I didn't have that choice so I did what I had to do. In the future, I intend to invest in mutual funds again but I would not be making the same mistakes as I did before. Those mistakes and the things that I learned from them would be a topic of my following posts.
