THE forecasted Philippine inflation rate for 2021 is as high as 5 percent, which means that the typical basket of goods would now cost 5-percent more at the end of this year than when we started the year. How does one cope with such a situation?
It would be great if you could get a higher salary to make up for this 5-percent shortfall. However, during these difficult times, with the September 2021 unemployment rate at 8.9 percent and an even higher underemployment at 14.2 percent, you would be lucky to even have a job!
Most people end up just making do with less, which has pushed many Filipinos into poverty, projected by the World Bank to be at 18.7 percent in 2021.
How does one escape the menacing jaws of inflation?
It would be easy enough to say that you just need to have your cash flow increase by more than the inflation rate. The sad reality is that this is much easier said than done. You cannot simply rely on salary increases nor expect that kind of return from your savings account or a money market placement in a bank, plus you have to deduct the withholding taxes on your interest income.
Where does that leave you?
You need to make the right investments. For this column let us assume that you do have some savings that you can invest. The problem is finding the right investments that will give you a higher rate of return than the inflation rate. Let me share with you some investment options that are able to consistently yield a higher rate than inflation. These would be equities, dollar denominated fixed income securities and/or mutual funds, properties and going into business. Investing in the stock market is certainly not for everyone; but if you know what you are doing, it could provide you with a great return over the long run. Just in the Philippine Stock Exchange alone there are many options for retail investors to allow for scalable investments.
You can have stocks that provide a decent return through cash dividends such as REITs or real estate investment trust. You can invest in index stocks that mirror the Philippine Stock Exchange Index. You can put your money in IPOs (initial public offering), which has mostly gone up on the first day of listing and hundreds of other stocks. You may also want to consider foreign-denominated fixed income securities and/or mutual funds as a hedge against inflation. In the case of the Philippines, you can get a double whammy from the high inflation rate and a devaluing peso at the same time.
Getting into a more stable currency such as the US dollar and investing in the various fixed income and funds that provide a fairly consistent yield higher than our inflation rate is not a bad option. As an example, BlackRock has a number of dollar-denominated mutual funds that have consistently yielded a higher return than our inflation rate.
Properties—which include country club shares—have been very kind to me and has provided me returns in multiples over the long run. However, there are associated costs such as property taxes, association dues and monthly membership dues, maintenance and possibly legal and security expenses that you have to contend with.
Finally, you can go into your own business that may just be a micro- or small enterprise if you don’t have a big amount of capital. I know many people who are able to make a living by trading, home cooking, operating a sari-sari store and so many other options. Some of them are even able to grow their businesses into medium and large enterprises.
Rather than wait for your employer to give you a salary increase, don’t you think it is about time you put things into your own hands?
The views and comments of George Chua are his own and not of the newspaper or Finex. Comments may be sent to georgechua@igsat.asia.