TLE LESSON 4.

SAVINGS

can be simply defined as setting aside a portion of an income, earnings, or allowance at home or in a bank. It can be used as a reserve to meet emergencies, as a retirement fund, or a way to realize long-term goals such as purchasing a new car or a new house and lot.

INVESTMENT

is the process of making money grow and have a return. It is putting money where it can earn interest for a period of time. Money placed in any type of investment has its own level of risk and return.

Having a financial plan

is essential for future stability, whether you're employed or in business.

Saving money helps:

• Develop financial discipline

• Ensure financial independence

• Provide peace of mind during emergencies or unforeseen expenses

• Support you during retirement when income may stop

• While you're young and earning, it's important to set aside part of your income as savings.

Investing money:

• Involves more risk than saving

• Often requires a larger amount of money

• Offers the potential for higher returns

• Can lead to greater savings if the right investment tool is chosen.

Saving Money (Ways of saving and investment)

• Keeping money at home is not advisable due to a lack of security.

• Saving in a bank is safer and more secure:

•  Opening a savings account offers minimal interest (1%–2% per year).

•  Ideal for those prioritizing safety and security.

• Banks are generally low-risk but not risk-free:

• A bank could be mismanaged or go bankrupt.

• The Philippine Deposit Insurance Corporation (PDIC) insures deposits up to ₱500,000.

• To protect your money:

• Distribute savings across multiple bank accounts in different banks.

Make sure each account does not exceed ₱500,000 to be fully insured.

Investing Money (Ways of saving and investment)

• Investment: Using money or assets to earn profit or added value over time.

  • Example: Buying real estate like land that may appreciate in value.

• "Money begets money" – investing allows your money to grow.

• The financial market is where various types of investments take place.

• All investments come with risk:

  • Risk - is the uncertainty of gaining or losing your expected return.

  • Example: Tossing a coin to decide a win/loss represents a 50/50 risk.

• Risk vs. Return principle:

  • Higher risk = potential for higher return

  • Lower risk = more stable but lower return

• People vary in their risk tolerance:

  • Risk-takers may aim for high returns.

  • Conservative investors prefer stability with lower gains.

• There are low-, medium-, and high-risk types of investments.

Choosing the right one depends on your goals and risk appetite.

a. Bank deposits

• Time deposit is a low-risk investment with higher returns than a regular savings account.

• Your money is locked in for a specific period (e.g., 1 year), and early withdrawal leads to penalties like reduced interest.

• Interest payments may be monthly, quarterly, or yearly, depending on your agreement with the bank.

• Deposits are insured by PDIC up to ₱500,000, offering protection in case the bank fails.

• Choosing a reputable bank lowers the risk of losing money due to bankruptcy.

• Inflation risk: If the interest earned is less than the inflation rate, the purchasing power of your money decreases.

Example: P100 earning 3% interest becomes P103, but with 10% inflation, it's not enough to buy the same goods.

• Banks offer higher interest on time deposits because:

• They invest your money (e.g., loans, shares, businesses) to earn profit and pay your interest.

• These investments need time to mature, so banks prefer locked-in deposits.

• Time deposits help both the depositor and the bank generate income over time.

• Penalties are imposed if funds are withdrawn before maturity to discourage early pullout.

The longer your money is invested, the higher the interest earnings — supporting the idea that “Time is gold.”

b. Government Bonds/Treasury Bills

• Government bonds or treasury bills are low-risk investment instruments offered by the government, providing better returns than traditional savings or time deposits. Since they are backed by the government, the risk of losing money is very low unless the government defaults. 

• These are sold through banks and licensed brokers, often at a discounted price with a guaranteed return at maturity. 

For example, buying a bond for ₱950 with a ₱1,000 face value will earn about 5% after one year. Some also offer a fixed annual interest rate. Investors can purchase as many as they can afford.

c. Real Estate

• Real estate involves buying land or property expected to increase in value over time.

• Property appreciation is slow and long-term, often taking years.

• Values are unpredictable and can depreciate or appreciate based on various factors.

• Money is tied up in the property for a long period, and returns are not guaranteed.

• Key factors affecting property value:

• Location (rural, agricultural, or commercial)

• Type of property (commercial properties often grow faster in value)

Economic growth of the area (e.g., development, population increase)

• Depreciation affects buildings (e.g., houses, condos) due to aging and usage.

• Land generally appreciates in value over time and is less prone to depreciation.

• Real estate is considered a safe long-term investment, especially land.

• Property values are based on fair market value and current market demand.

• Real estate brokers determine prices based on recent sales and location trends.

d. Mutual Funds or Unit Investment Trust Funds

• Mutual funds (also known as Unit Investment Trust Funds) are pooled investments offered by banks or authorized entities.

• Management: Managed by experienced professionals who invest on behalf of multiple investors.

• Types of Investments: 

• Stock market (company shares)

• Money market (short-term loans or government bonds)

• Combination of both

• Investor Convenience: The bank handles all investment decisions and transactions.

• Investment Units:

• Your money is converted into investment "units" based on current unit price.

• Example: If unit price is ₱1.00 and you invest ₱10,000, you receive 10,000 units.

• Value Growth:

• If the pooled investment grows (e.g., total pool becomes ₱110,000 from ₱100,000), unit value increases (₱1.10/unit).

• Your investment value rises based on the new unit price.

• Management Fee: Banks charge a fee for managing the fund, deducted from the total pool regardless of gains or losses.

• Daily Unit Price Update:

• Unit price is updated and published daily by the bank.

• Investors can monitor performance and decide when to withdraw.

• Withdrawal:

• You can redeem your investment anytime based on the current unit price.

• Risk Level:

• Medium- to high-risk investment.

• Success depends on the performance of the companies where money is invested.

• Bank’s Role:

• Banks select companies with strong records in profitability, stability, and management.

• They do not control the companies’ performance.

• Economic Influence:

• Fund performance is tied to the country's economic condition.

• Good economy = potential growth; poor economy = possible losses.

• Investor Decision: 

• Investors must assess market conditions to decide whether to stay or withdraw their money.

e. Stock market or equity market

• The stock market is similar to mutual funds but gives investors freedom to choose which company to invest in.

• Investors become part-owners of a company by buying shares of its stock.

• A share of stock represents ownership in a company; a certificate is issued as proof of owThe Philippine Stock Exchange Inc. (PSEi) regulates and oversees stock market operations.

• The stock market is the official venue for trading (buying and selling) shares of stock.

• The term "trade" means buying and selling shares.

• PSEi publishes a list of companies whose stocks are available for trading.

• Investors cannot buy stocks directly from companies; they must go through licensed stockbrokers.

• Stockbrokers act as intermediaries who trade on behalf of investors.

• Only accredited stockbrokers should be used for transactions in the stock market.

Broker-Dealer

A person or firm in business of buying and selling securities for its own account or behalf of customers.