I find it is easiest to understand financial advice when the advice is relatable, personal, and rooted in the family. I grew up in a middle income family. A single income family. An OFW family. My father did well enough abroad to send my siblings and me to international schools in Saudi Arabia and Manila, and to the top universities in the Philippines. Like every family, we had our ups and downs. Those ups and downs all centered around my father’s professional career as an engineer. He definitely made more than enough for our family and most—no, all— of our relatives who needed anything. But for some reason our family would still struggle during his ups and downs as our breadwinner. This is why the topic we are discussing today hits close to home.
A family losing its only breadwinner is a scary proposition for anybody, but more so for those of modest means. Losing that single income can come in several ways, such as the loss of a job, disability due to a disease or accident, and the worst of them all, death. Is there a way to protect one’s family from such a situation?
When it comes to financial protection in the event of the death of a loved one, one immediately thinks of insurance. Life insurance, by definition, is a contract wherein the insurance company promises a death benefit for the insured’s beneficiaries. Simply put, if the insured individual dies, his or her loved ones receive an agreed upon cash benefit. Insurance presents some unique challenges. For example, the older you are, the more expensive life insurance becomes. The same goes for how prone you are to sickness or how much more risky your work is from the next guy’s. Another wrinkle with insurance is that cash benefits which sound large today might actually be very small when they are actually paid out. That is the effect of inflation. Simply put, because the cost of basic goods and services is forever changing, money today won’t necessarily have the same value or buying power tomorrow.
It all sounds confusing, highly technical, even daunting. So we spoke with an expert to clear things up—Mr. Philip Hagedorn, Chief Investment Officer at ATR Asset Management.
Philip says life insurance is one way to protect your family. Another way is to invest savings. Now the common argument against savings and investment is a ‘stretched budget.’ When the issue of saving is brought up at our family’s dinner table the replies are almost automatic. “I’m spending so much on power and gas and there’s nothing left to save or invest.” “My paycheck goes to rent, transport and tuition. Saving isn’t in the budget.” Philip says “the first item on anyone’s budget should be savings. It does not have to be a very large amount but make it a practice, that before you pay anyone else on your budget, pay yourself first.”
That is a great way to look at savings, paying yourself. You can even categorize your savings like many financial planners do. Savings for education is paying for your self-improvement. Savings for retirement is paying for your comfort when you are older. Savings for travel is paying for your rest and relaxation in the future. Savings for your family is paying for your family’s future needs. All of these are just as important as your current expenses. In fact, the mindset of saving or paying yourself first places your future needs ahead of your current expenses.
Now Philip didn’t tell us to just save, he told us to invest savings. Being a Chief Investment Officer, he could also tell us how. His primary rule for investment is having a balanced investment portfolio. This is called diversification, and it means having a mixed collection of assets. When you have multiple types of assets you are protected from the risks of each asset class.Take the stock market for instance. The Philippine Stock Exchange Index peaked at above 9,000 early in the year. If you invested all your savings in the PSE at the peak, you would have lost a sizable chunk by now, as the PSEI has fallen to 7,000. However, if you invested only a third of your savings in the PSE, with another third in fixed income assets such as government bonds, and perhaps another third in a foreign currency or a time deposit, only one third of your savings would have been exposed to the wild swings of the stock market this 2018.
Our family was never into stocks or bonds and I myself never really got into such topics before my first job as a loan officer at a bank. Investment is actually not the norm in the Philippines, and there is only a fraction of the population invested in the stock market or fixed income assets. Investment was not a strength of ours. If you feel the same, don’t worry, Philip has a solution. He says the best way to have a diversified portfolio is through Mutual Funds or Unit Investment Trusts (UITFs). Think of it as having your personal investment professional looking after your money. Investment minimums are low, meaning you don’t need a large amount to get started. On top of that, the funds are managed with the right mix of stocks, bonds and other assets to provide clients exactly what they want based on their investment goals. It’s just a question of outlining your investment goals, and deciding which fund manager to trust. Philip’s company ATRAM offers multiple funds to choose from including the ATRAM Balanced Fund. For more information visit www.seedbox.ph to get matched with funds that suit your investment goals. It can also help you out in setting financial goals.
This is important. Financial goals will be very specific to each individual. In fact, the goal to ensure the financial future of a family in the event of the death of a breadwinner could actually still have a different meaning depending on the family. My family would naturally have different needs compared to others. If a family’s future needs are much larger than the breadwinner’s current income, an aggressive investment plan might be needed. If the breadwinner’s current income allows for a large amount of savings, the investment plan could be a bit more conservative. Think about how much is needed, and how soon it would be needed.
Philip says it would also be best to get advice from a trusted friend, boss, family member or acquaintance, particularly when it comes to how the surviving family should handle financial assets left behind. Imagine if a family had enough stocks and bonds to pay for all its needs but did not know how to use them. The key again, Philip says, is plan ahead. If needed, leave instructions for loved ones.
Philip has one final alternative. He says “The best way to protect your family is to stay healthy and live a long and productive life.” Naturally that would be the ideal situation for everyone. For everything else, it would be safer to plan ahead. I for one would love to have a healthy, long and productive life, and a great financial plan for my family. I hope all families enjoy the same.
Find out more from ATR Asset Management. Visit them at 8/F 8 Rockwell, Hidalgo Drive Rockwell Center, Makati City Philippines, call +632 814-7800, or check out www.atram.com.ph.