How to invest for retirement for Filipinos

You work hard to save up for retirement. But if your retirement planning revolves entirely around saving money, your strategy needs work. Money loses power over time due to inflation. If you want to preserve the purchasing power of your money, you need to build a profitable portfolio and start investing for retirement.

Investing for retirement for all

Many Filipinos feel that retirement investment is reserved for the upper-middle to wealthy class. With the wide range of investment products available in the market today, that assumption is far from true. It's all about finding the right ones that align with your current income level and financial goals.

Anytime you invest money into something, it’s safe to say there are risks involved. Typically, the higher the risk, the higher you can potentially gain, and the more you invest, the bigger the returns. But this also means that if your investment backfires, you stand to lose a sizable amount as well. While investing poses a risk, it can potentially bring returns that are most likely higher than if you just let your money sit in your savings account. It can seem daunting but learning how to invest for retirement the right way doesn’t have to be complicated.

Types of investment

First, identify your risk level or how comfortable you feel when taking on risks when investing. For example, would you like to invest in safe, yet low-returning investments or would you prefer to take more risks in the hope of larger gains? When investing for retirement, you can choose between three types of investments:

• Low-risk investments
• Medium-risk investments
• High-risk investments

Low-risk investments

Low-risk investment options include time deposits and money market funds. Most of these don't offer interests or returns that are higher than the current inflation rate but they do help protect the money you save.

By opening a time deposit account, you commit to setting aside a certain amount of money for a determined period, with the expectation of earning a pre-specified interest on the date of maturity. It doesn't matter whether you choose a term of maturity that is long term or short term--you are guaranteed the principal amount plus interest earnings.

Money market funds, on the other hand, have an investment horizon, or the amount of time you are expected to keep the fund, of at least 30 days. Banks use money from money market investments to invest in stable, low-risk, and short-term securities. They are excellent investment vehicles when you aim to boost returns on the portion of your savings' value that you want to protect.

But while time deposits and money market instruments offer security and stability, the size of the return is lower compared to other investments because there is less risk involved. If you want to gain more from your money, you can choose to go with medium-risk investment instead.

Medium-risk investments

Medium-risk investments are medium-term investments with moderate returns. While there's a certain amount of risk involved, you typically receive higher returns than regular deposit products.

Medium risk investments include fixed income securities like corporate bonds. You can diversify by investing in a bond in several markets. These pay well over the medium term, and you can grow your money nicely.

Some of Metrobank's Unit Investment Trust Funds (UITFs) such as the Metro Max-3 Bond Fund and Metro Corporate Bond Fund are great examples of medium-risk investments as they are flexible according to your financial goals. Choose the type of investment that brings you closer to where you want to be. For instance, the Metro Max-3 Bond Fund lets you earn through bonds without buying them yourself. Your funds are invested in fixed income instruments with higher potential returns compared to low-risk investments. It's the best intermediate-term bond fund for growing your savings over time as it has an investment horizon of at least one year.

High-risk investments

High-risk investments refer to stocks, hedge funds, and equity funds. They come with a high potential risk of loss, but the returns are rewarding when held over the long term.

The price of high-risk investments is typically influenced by the performance of the corporation it is tied to. Factors such as company management, earnings, and related news affect the company's stock price, making them risky due fluctuation and volatility. The silver lining is that if the performance of the fund's holdings is stellar, they produce long-term gains that make them incredibly appealing. Their yield potential gives you the best chance to beat inflation over long periods, making them an essential part of a great retirement portfolio.

The Metro Equity Fund is designed for maximum growth potential. It lets you invest in diversified and fundamentally sound equities listed in the stock exchange so you can yield higher returns.

Benefits of investing early for retirement

No matter which types of investments you choose, one piece of sage advice remains: start early. It gives your investments more time to grow. This allows you to take advantage of the power of compound interest. Compound interest is when earlier investment returns start earning their own returns, which then earn even more money in the future, snowballing over time.

Investing towards your retirement early provides you with the following benefits:

• You leverage the power of compounding--reinvesting your income to create a snowball effect with your annual yield.
• You have more time to recover from losses, so you can try higher-risk investments with higher potential rewards.
• You gain more experience and develop expertise in a wide variety of investment options.

Keep in mind that the objective and purpose of your investment are also factors in your risk tolerance. Consider the different types of risk that could affect the performance of a specific investment. Then determine whether the investment is appropriate for your risk tolerance. You may discover that your tolerance for risk is lower than you expected or perhaps you need to accept more risk to achieve your financial goals.

For instance, if your purpose is to build wealth for retirement and you are currently 30 years old, it’s best to start as early as now so you have around 35 years until retirement. This gives you enough leeway to invest in riskier instruments as you have a longer time to wait out periods when prices fall. Having a longer investing horizon means more time and potential for your money to grow.

Or let us say you are 40 years old and the breadwinner of the family. Because your family relies solely on you for financial support, you do not have the liberty to be hasty about your investments. You have a lower risk tolerance because you cannot afford to lose much money, with so many people relying on you. So, you choose a low-risk investment over a longer period of time. While the gains may not be as big, they are still guaranteed. You also don’t stand to lose as much money.

Best way to invest money for retirement

Investments that generate a higher risk of return, such as stocks, UITFs, and mutual funds, are generally the best way for most people to grow their money over time. Again, when deciding on how much to invest in stocks, it is important to consider your risk tolerance.

Whatever your level of expertise or starting amount, you can invest for your retirement. When you start investing, you are not only taking proactive steps to build wealth, but you’re on your way to making life more meaningful well beyond your working years.

Let Metrobank help you build your retirement fund. Visit your nearest Metrobank branch so you can ask us about your investment options today.