AN entrepreneur and financial adviser challenged present and would-be investors to learn risk management, and to willingly leave their investment alone while it grows over a period of time.

Francisco Colayco, chairman of the Colayco Foundation for Education Inc., said Filipinos should focus on risk management rather than on investment returns that are “risk-driven and cannot be controlled.”

In a symposium organized by the Philippine AXA Life Insurance Corp. (AXA Philippines) last week, Colayco noted that some P80 billion across the country have already been lost to scams and pyramiding.

“It is important to invest on a particular purpose. I call it purpose-driven investing. Without a purpose, one will only invest on transactional businesses through which you are aware of various good products but not know which one is good for you,” he said.

This purpose could be protection, life or retirement goals, and “not because a friend egged one into buying insurance,” he added.

To mitigate risks in investment that is driven by returns, risks and time, Colayco recommended that people regularly invest for a long period—or at least five years—in quality products or plans that are consistent with the investor’s financial goals.

Asset allocation

He also pushed for asset allocation or the distribution of investment funds to various assets in order to reduce risks, lessen losses and stabilize returns.

Through asset allocation, an investor can diversify his portfolio, such that when things go bad in one investment class (like stocks), he still has other assets he can earn income from, like bonds.

Colayco observed that if an investor allows irrational fear to rule his actions, he will lose. He cited an incident in the present stock market where many investors are “buying low and selling lower” stock value because of fear of the downturn trend in the market.

He said that a person who is planning to invest should know his balance sheet (his assets and liabilities) and determine his net worth. He also pointed out the need for him to be aware of the basics of investment (return, risk, liquidity time and asset allocation) before deciding what currency base to use and which asset classes to invest on.

Colayco’s advice: “It is our obligation to build up our money over time in a market-driven economy, understand that the
principle behind investment is that we can’t share with others what we don’t have. So grow what you earn, protect what you earn, spend wisely and share it with others.” (NRC)

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(November 24, 2008 issue)
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