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Saturday, November 15, 2008

Is a Bank an Investment Vehicle?

When I was a kid, a bus ride cost 25 centavos.Today, the same bus ride costs seven pesos.

What happened? In one word, inflation.

Overtime, your money loses its purchasing power.

When it comes to money, there are really only three kinds of people in this world. 1. Spender 2. Saver and 3. Investor. And sadly, only one of these three will win the money game. Which one are you? Let me introduce them to you by way of a story. James, Jim and John were salesmen. The three of them landed a huge deal. And their company gave each of them a P100,000 commission check. They were totally blown away by their luck, but they used their money in very different ways. Because James was a Spender, Jim was a Saver, and John was an Investor.

1. Spender

Upon receiving his check, James encashed it, and went straight to a fancy restaurant and invited all his friends to celebrate his good fortune. Later that day, he bought himself a new hi-tech gadget like cell phone, MP4 player, portable playstation, etc. The next day he took a holiday trip to Boracay.In three days, James had nothing left from the P100,000 commission.

This is the story of his life. After many years of working, he has no savings to show, but he has many credit cards debts.We see spenders everywhere, and I hope you’re not one of them.

2. Saver

Jim walked straight to the bank with his P100,000 check.He approached the friendly bank teller with a smile and said, “Miss, I don’t plan to touch my money for a long time. It’s P100,000. How much interest will you give me?

She nodded and said, “Let’s put it in a time deposit account. We’ll give you five percent interest a year. That’s the highest we can give you, sir.”

“Okay!” he agreed, signed the deposit slip, and walk out happy.Thirty-six years later, he was 65 years old. He retired at age 60, got his retirement package, spent it in five years, and was now totally broke. That was when he remembered his time deposit. He visited his bank.

He saw the same friendly teller “Hi, I deposited P100,000 some 36 years ago,” he said, “and I’m finally withdrawing it. How much is it now?”

“Just a minute sir,” she looked at her computer, and after a few minutes looked op and said, “Sir, you now have P400,000.”

The retired salesman blinked hard. “After 36 years, it’s only grown to P400, 000? Perhaps you’ve made a mistake, miss.”

“I’m no longer a miss, sir. Lola na ako. And no, there’s no mistake…”Savers are good, disciplined, honest people, but savers still don’t win in the money game.

3. Investor

John was the Investor. He doesn’t go straight to the bank. He goes to where the bank puts their money. In other words, he bypasses the bank.

Out of the three salesmen, only John has raised his financial I.Q. He learned that the banks put a part of their money in investment vehicles like mutual funds, bond funds, equity funds, and stocks. So he thought, if it’s good for them, why not for me?

So John takes a few days researching for the best mutual fund investments in the country and visits one of them.

He approaches the lady behind the desk and says, “I’ve never done this before but I want to invest in mutual funds. How much interest will you give me?”

The lady shook her head, “Unlike banks, we don’t guarantee our interest rates. They depend on the ups and downs of the market.”

“Isn’t that scary?” John raised hi eyebrow.

“It is – if you plan to invest for only a short period of time. But if you plan to invest long term and ‘forget’ about it, it won’t be scary. Like for the past years, we’ve given our investors an average of nine percent to 12 percent growth.”

“Yes, I do plan to invest for the long-term,” he says, “but do I have to invest millions to join your mutual fund? I don’t have millions.”She laughed. “Sir, the minimum is P5,000 per investment.

”His eyes bulged. ‘What? That small? Then anyone can invest!”

“Mutual funds are the great equalizer. Some call it the secret of the rich which is now available to the poor. Banks don’t treat people equally, but we do. Someone who puts P5 million in the bank gets a higher interest than someone who puts P5,000. But in mutual funds, it doesn’t matter how much you put in. Five million or P5,000, you earn the same interest.”

So John invested his P100,000 and left happy.Thirty-six years later, at the age of 65, John wanted his investment back. So he walked into the same mutual fund company and asked about his investment fare the past 36 years.

The lady on the desk said, “To be honest, there were bad years and good years. There were years your money lost earnings but there were great years when your money earned 20 percent and more. In the past 36 years, you averaged 12 percent a year.”

“Is that good?” he asked.

“According to my records,” she smiled, “your original P100,000 has now grown to P6.4 million. Now you tell me if that is good.” She winked.

“That’s very good!” John grinned from ear to ear.

Mga kabayan and friends, now you know why banks have nice, tall, expensive buildings.

They get your P100,000 and invest it in an investment vehicle where they earn P6.4 million, and then return to you the P400,000.How much did they earn? 6 million.

So next net time your bank offers you a cup of coffee for depositing P100,000, realize that the cup cost you P6 million.

Here’s my big question: At least for your retirement fund, why not bypass the banks? Why don’t you invest your money where banks invest their money?

You can. Anyone can.

Check out for a listing of mutual funds in the Philippines.

Excerpt for the book of 8 Secrets of the Truly Rich by Bro.Bo Sanchez

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