Bonda rito lang po

I write for Tulay, an English fortnightly publication of World News (a local Chinese language daily). For some time now, I've been writing business articles after doing features and what not in the previous issues. I am supposed to contribute also to Money Sense, a personal finance magazine, but due to my work, I experience difficulties submitting articles. It disappoints me that I can't contribute as much. It means I have less time to give people ideas about investments, savings, et. al. (likewise for this blog)

Most of my later business articles with Tulay were about personal finance and retail investment opportunities for the local market. As I began doing those articles, it became obvious that the available instruments are redundant. There are too many providers offering you the same stuff. But don't get me wrong, these are all good and the fund managers and the banks managing the UITFs or mutual funds actually serve as institutional investors, particularly for the stock market.

The one market I would like to understand is the bond market. It's not as exciting as the stock market but bonds are generally accepted as safer security investments. Usually, most of the bonds issued are gobbled up by banks and financial institutions, and there's really nothing left for the retail investors.

Every now and then though, something does pop up as opportunities for the small investors. These are the corporate bonds and retail treasury bonds. The problem with these two types of bonds, at least to my knowledge, is that they do not offer this neat investment trick called compounding.

Why?

Upon investment of a bond, the interest is credited monthly to your account. So in effect, you're giving your money to the lender, letting him use it, and then returning it to you after 3 or 5 years - but only the principal because the interest has been credited to you already. Classic case of OPM, other people's money. Of course, that's just a jaded view of bonds.

The plus side of investing in these kinds of bonds is that you let your money work for you. So at least you can expect something quarterly that's higher than the regular savings or time deposit. But in the long run, you should also be looking at investments that have a compounding effect.

Compounding means that the interest you earn is rolled back into the principal, thus earning you more each time there's additional interest applied to it. Supposedly, stocks and mutual funds have a compounding effect.

What I do know is that they appreciate in value over the long term, so your original investment is getting bigger. So there's capital appreciation, but not necessarily compounding. Compounding will happen though, if there were dividends, and you invest it back to the fund or stock.

Compounding is also one way, if not the only way, you can escape the dangers of inflation.

Until the next post, invest wisely.