I asked my dad last night for his opinion on time deposits and trust funds. His response was to research these subjects before I put my savings into it. Perhaps he was just concerned that I might lose my hard-earned savings.
There were many factors that I took into consideration before I made my decisions. I asked myself a lot of questions and weighed things before finally deciding. How long am I willing to invest my savings. What is my risk threshold? How much will am I willing to risk? I am currently in a relationship, but I have no obligations and dependents. I have no debts, and I have a well-paid job. These factors will help me determine which investment to choose.
Time DepositsTime deposits are perfect for people who have a low tolerance for risk. Due to PDIC insuring time deposits up to Php500,000, it is safer compared to other investments. There are also tax-free time deposits with high-interest rates, but your investment is locked-in for five years. Time deposits are more secured than trust funds but at the expense of lower returns.
Unit Investment Trust Funds
There are four trust funds in the Philippines: Equity Funds, Bond Funds, Money Market Funds, and a Balanced Fund. Equity funds offer the highest returns, but they are also the most volatile. Equity funds are risky if you have a short investment horizon, but they perform well in the long run.
Bond funds are invested primarily in bonds and debt instruments. These funds are more predictable compared to equity funds since these funds usually have steady performance.
Money Market funds comprise low-risk fixed-income securities. These funds aim to protect capital, thus limiting its risk and return.
Balanced Funds are a mix of any of the funds above. These funds attempt to balance the risk and return. These funds provide mediocre returns but are less likely to incur huge losses when a downturn occurs.
After carefully deliberating between trust funds and time deposits, I decided to invest my savings in a trust fund. My investment is a mixture of bonds and equity funds. I chose these funds since I intend to keep them long-term. I use Cost Averaging to minimize my risk in equity investment. Visit my post Equity Investment Strategies - Cost Averaging to know more about Cost Averaging.
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