Two decades ago, it was unthinkable to invest in financial securities like stocks and bonds without considerable cash. Minimum amounts to invest would amount to at least Php1 million.

It is a good thing that pooled funds, notably variable unit-linked (VUL) insurance policies, mutual funds (MFs), unit investment trust funds (UITFs) “crashed the party.” With these pooled funds, the ordinary Juan on the street can now invest in stocks and bonds with professional management to boot.  

Investing in pooled funds has become very affordable with minimum investments coming in for as low as a few thousand pesos. But investors should not fool themselves. The low minimum investment sizes are there to allow people to invest regularly, preferably on schedule, to make financial goals easier to reach.

If we break down the wealth formula, goals can be interpreted as future value (fv). Starting funds could be represented by present value (pv). Periodic additions to investments can be represented by payments (pmt). The period of accumulation until the goal is reach can be represented by number of periods (nper). And the rate of return from the investment outlets is rate. In time value of money terms in MS Excel, the formula can be stated as “=fv(rate,nper,pmt,pv)”.

 

It is a good thing that pooled funds, notably variable unit-linked insurance policies, mutual funds, unit investment trust funds ‘crashed the party.’ 

If a person starts early, he will have more time (nper) to invest smaller amounts (pmt), start with a relatively smaller investment (pv) and lower the required returns on his investments (thereby minimizing the risks) in achieving his goal (fv).

So how does a person figure out all of the above? He should talk to a financial planner. There is an abundance of such financial planners working either independently or through product providers like life insurance companies, investment companies, and banks.

On the other hand, a pooled fund’s professional investment manager handles the daily chores of investment research, portfolio allocation, trade execution, portfolio rebalancing, risk management, compliance monitoring, performance measurement and reporting to investment committees, boards of directors, unit holders or shareholders and regulators. More importantly, the professional fund manager is not just one person but an institution operating within structured processes. That set up leaves no room for rodeo cowboy-like moves and allows risk mitigation in the investment process. 

Having a professional manager is not free, however. But then again, the cost for investment management and fund administration, which range from 0.50% per annum (p.a.) to 2.5% p.a. depending on the complexity of the role of the professional manager, is worth so much more than the potential (opportunity) losses that amateur investors face if they invest on their own. 

Such losses are mitigated by in-depth research, economies of scale since large funds get better allocations and lower brokers’ fees, and accurate record-keeping.

Investment performance is also a breeze since all the investor needs to do is to keep track of his total units or shares of the pooled fund and multiply them by the latest net asset value per unit (NAVPU) or net asset value per share (NAVPS). 

For VULs, the investor can just give a call to or visit the website of the life insurance company carrying the product. For MFs and UITFs, prices are available on a daily basis at www.pifa.com.ph and www.uitf.com.ph, respectively. 

Pooled funds also come up with periodic fund fact sheets that not only give the specs of a fund but also tracks its performance and gives an insight as to how the professional manager views the fund’s long-term prospects.

But perhaps the most telling advantage of pooled funds is that the percentage returns on a person’s Php10 million investment in a pooled fund will be equal to the returns on another person’s Php10,000 investment in the same fund. 

Now, anyone can truly invest like the rich and famous.