Venture Capitalist

For people who loves business but either have no expertise or time to start one themselves might be interested in becoming a venture capitalist. In a nutshell, a venture capitalist invest in other people's business, usually receiving a percentage of interest along with the capital. Interest rates are attractive and they vary from 3% to 7% a month. These type of investments are usually secured via contract with post dated checks for payment and the business is registered via DTI or SEC. The types of business which usually required funding by venture capitalist are just starting up and have difficulty securing loans with credit agencies or banks which they are deemed as high risk.

But if banks and credit agencies don't want to lend to them, why should we right? Isn't it risky? Well as with every other types investment, due diligence is the key. Venture capitalist look for start-up, high potential growth companies that they can invest into. It really depends on one's appetite for risk, the higher the risk the bigger the profits as the saying goes. These type of investment isn't really for everybody. But the promise of big returns attracts a lot of potential investors.

But how do we find these business to venture to? You might have seen these type of advertisements in various buy and sell sections of news papers and magazines usually with the following headlines...

• DON'T LET YOUR MONEY SLEEP, INVEST WITH ASSURED RETURNS!!! MIN INV.30T 7%INT/MO W/ CONTRACT & PDC'S

• GEN. MERCHANDISE Needs financier, 50/50 profit sharing

• PUBLICATION Needs financier, new concept, big profit
  

Although the headlines make it sound so attractive, it is important to sift through all of these offers to find which ones are legit and which ones are down right scams. Here are some guidelines for the start-up venture capitalist:

1. Transparency or legitimacy of the business - Very important to take into consideration before sinking any of your hard earned money into.
2. Back-up plans - Alternative course of action in case the company folds by any legal means necessary.
3. Background check - Conduct a through investigation behind the people promoting the business or who are in business.
4. Ocular investigation of the proposed business - Is there really a business going on and do not just rely on DTI to SEC papers as proof.
5. Feasibility study of the product or service being offered - Can the product or service being offered able to deliver the promise returns?

Passive Entrepreneurship

Of all the ways we could earn money, generating passive income is my absolute favorite, and becoming a passive entrepreneur is my ultimate dream. Why passive income you might ask? Well who doesn't want to earn money while doing nothing, well not absolutely nothing unless you consider going to the bank to withdraw your interest earnings too much of a hassle. The passive entrepreneur earns while watching a movie at G4, drinking coffee at starbucks, hanging out at Tiendesitas even while they are sleeping. These entrepreneurs have none of the stress thats related to having a job, and none of the headaches associated with owning a business. They make their money work for them. The typical portfolio of a passive entrepreneur includes a mix of time deposits, stocks, mutual funds, UITFs, rental from properties, bonds and government securities. While it is possible to earn all your passive income from one investment vehicle, it's better to diversify to minimize risk and to maximize your earning potential.

But earning enough from your passive income to cover all your expenses and your occasional wants is really difficult, unless one is born very rich or inherited a large sum of money. It takes millions of pesos and two or more of properties for one to be able to live off the interest and rent so becoming a passive entrepreneur takes time to build up, usually over the years and most only get to enjoy the fruits of their labors when they are already in their 50s, 60s or even 70s so start saving and building up your assets as early as possible. I am personally aiming to rely on passive for 100% of my expenses when I hit my 40s where I only need to work because I want to, not because I have to. I could never stress enough the importance of saving and investing you money at the earliest possible time. You don't need to have hundreds of thousands of pesos to start saving up for your passive income. Aside from the more traditional and well know time deposits, you could start investing in mutual funds and the stock market using an online broker like Philstocks for as little as five thousand pesos only. From then just keep of reinvesting your interest and watch your investments grow. There are also many strategies that can help increase our passive income earning potential which
will be discussed further in the days ahead.

Maintain and Multiply Your Wealth

You have just got made it big with a unique business idea or have been promote to an executive position and you're seriously thinking of how to spend your new found wealth. You are considering buying the latest expensive luxury cars or thinking of buying a big condo in Makati or a townhouse in the plushiest subdivision. Hey you have more than enough to burn right? What's next? Expensive dinners with your wife and family, or how about a mistress? Since you can already afford to get one. But before thinking of new and crazy ways to spend your wealth, think of how to maintain your wealth. Getting rich and maintaining your wealth are two totally different things. People who get rich and spend their money unwisely are often poorer than they first started. Having lots of money makes people think they can afford the fanciest cars and the nicest homes and often get a loan thinking the good times will never end. But not everything last forever and in an event that you can no longer sustain payments for your fancy car and the mortgage of your house, it will be repossess and you will be back where you started but a lot poorer and not everyone can rise up again after having their properties repossess. Pretty scary scenario but it happens more often than you think. Just look at the number of repossess cars and properties offered up for sale by banks and other finance agencies.

Maintaining you wealth requires careful planning and investing so you can multiply your wealth. But how can you multiply your money while safeguarding your future? The answer is Investment options. When it comes to investments, the average Pinoy is often lost and confused. He is already having enough trouble balancing his checkbook and managing his cash flow to pay for living expenses and perhaps some loans. Who has the time, resources or even the wits to invest in business, stocks, bonds, UITFs? Experts say that the best way to make the most out of one's money is to diversify and try out various options. But the bigger question is, which option to try? Which would be safe? What would work? Well the answer to those is it depends. Its depends how much money you are making so that you can allocate a portion of your earnings to investments, how long you are able of willing to lock in your money and how much risk you are willing to take in investments that can actually make you loose money. The safest and obvious choice for investments is time deposits. But returns are low and sometimes you loose out to inflation but are the safest to invest in mutual funds and UITFs offers higher yields but requires you to lock in your money for a longer periods of time. Stock Trading offers the highest returns and is also the riskiest to get into but the rewards are worth it. My personal preference in spreading my money is 70 percent in time deposits, 20 percent in mutual funds and 10 percent in stocks. Never invest all your funds in one investment vehicle.

Investment Alternatives To Time Deposits

In case you haven't notice yet. Time deposit rates in banks are dropping like flies for the past months into all time lows. Top commercial banks are only offering a rate of 1% to 3.75% depending of the placement amount per anum for short term deposits, and that rate is still gross of 20% withholding tax. Not to mention that savings accounts will no longer offer the standard rate of 1% per anum to 0.50%, Pretty dismal rates if you depend on money earned from interest rates for your monthly expenses. But there are alternative investment vehicles where one can diversify into.

One popular investment vehicles is the Unit Investment Trust Funds or UITFs, which offers higher yields compared to a traditional time deposit. UITFs invest into bonds, fixed income instruments, government securities and the stock market and is offered by banks and usually has a holding period of 30 days or more. One main difference between UITFs and time deposits is with UITFs you can actually loose money and it is not insured by the PDIC, meaning that when the bank offering the UITFs goes under, there is no P250,000.00 covered insurance.

Investing in stocks is also a great alternative to time deposits. Investing in blue chips stocks ensure gains as well as dividends issued by the company. But before investing, it is wise to actually take time and study how the stock market works. It usually takes more time and effort in conducting research into what stocks to invest unlike placing it in time deposits which only requires you to deposit your money and the interest will come rolling. But the gains associated with the stock market cannot be overlooked. Many investors have become millionaires from it but a lot has also lost money if not financial ruin from stock trading. So it is wise not to put all your eggs in one basket. For example you have 1.5 million pesos, place 500k each in time deposit, UITFs and stock trading. Never gamble all you money in one investment vehicle. Learn to diversify so you can minimize you loss in case something unthinkable will happen.

Peso Time deposits at an all time low

Low rates

For those who has a time deposit invested in banks. You might have noticed that interest rates are at an all time low. This is due to T-bill or Treasury bills rates dropped to record lows across the board. This is what banks use to benchmark their deposit rates and loan rates. The positive side is loan rates.. Well atleast home loan rates have dropped also. Car loans, personal loans and credit card rates basically remains just the same.

The highest rates being offered by the market these days for short term placement is only 4.75% per anum, and you need atleast 5 million pesos to reach this bracket. Deposit rates below 50 thousand pesos is only around 1.25% per anum. Which is hardly any bigger that a savings account. And these rates are also gross of withholding tax. Which means what ever amount you are getting it will be deducted by an additional 20%. This amount does not go to the bank but to the government tru the Bureau of Internal Revenue and to ate glue. This is bad news for people who rely on time deposits for their monthly expenses like senior citizens who are enjoying the fruits of their labor and retirees.

But for long term placements the rates are still quite high, which is around 6% to 7% net of withholding tax, but ofcourse there are no where near the rates from a couple of years ago. Long term means around 5 years for most banks and interest is credited to a savings account monthly which can be withdrawn. But the principal is locked in for 5 years but it can be pre terminated in case of emergencies but with a hefty penalty which is usually the around 75% of interest received plus documentary taxes.

Picture: www.jordan.hsbc.com

Back To Home Page