Life has been so busy lately that I just realized that this is my first net worth update this summer. My current net worth is
PhP 2,210,744.81 / USD 42,514.32*
This is composed of:
Real Estate 48.99%
Stocks etc. 17.62%
Retirement account 2.26%
It’s been an expensive summer with my overseas trip and a minor construction at my condo (which resulted to an increase in rental yey) and it shows in this update. To make up for this, I have been squirreling away money like I’m storing up for winter. Haha. Other than these net worth updates, which make me feel accountable to an audience, and frugal husband who is the OG in saving, there is one other source of motivation for frugality.
I have to give a shout out to MP at Mustachian Post who tirelessly emails every now and then to track my updated saving rate. As you know, it is what you save that matters more than how much you make. These email-requests from MP certainly keep me on my toes each month and keep me from spending too much, lest I f*ck up my saving rate! If you’re curious how your saving rate compares with other money bloggers from around the world, head up to MP’s Blogger Saving Rate Index, which features bloggers’ saving rates.
Shift to equities
In my last net worth update I considered increasing liquidity such that asset allocation for cash and stocks should be 35% each, or a total liquid asset allocation of 70%. I have reconsidered this position as the economy is shifting with an increase in inflation (cost of basic goods which used to hover at 2-3% but is now at 4%). What this means is that as cost of goods increase by 4% your cash loses the same percentage in terms of buying power. You lose 4% per year to inflation by just keeping your money in cash. Your cash needs to keep up with inflation by earning at least 4% per annum.*** That’s not going to happen by just holding cash in a bank account.
In theory, an increase in inflation eventually carries with it an increase in stock prices. Recently, however, economic theory hasn’t translated to the real world but we shall see. Anyhow, with this eventuality (theoretically) looming, I anticipate a rise in stock prices so I don’t want to miss out by holding too much of my assets in cash. A quick look at the local stock market anyway shows that prices have drastically fallen for the last two months. With these falling prices, I have been able to add blue chip stocks to my portfolio at a huge discount. My cash emergency fund isn’t at its optimal level as a result of stock-buying. Nevertheless, stocks are generally liquid but one runs the risk of selling at a loss. This is a risk I will take at the moment.
On retirement saving
As for diversifying investment, my PERA account takes care of that as it is essentially a unit investment trust fund (UITF which is kind of like a mutual fund only you don’t own shares in the mutual fund company but mere units in the fund and well less transparency) that is invested in various equities. As you may notice I haven’t increased allocation to my PERA account yet.
I am not in any rush to do as: 1) BPI (PERA administrator) has yet to come through with its promised tax credit certificates which may be used to deduct one’s tax liabilities; 2) it’s a boring investment as you don’t really feel involved in the process or able to actively track your investment; and 3) with retirement seeming like such a long way away, I feel no need to rush. On the upside, BPI has been consistent in sending my account statement stating number of units, value per unit and profit, among other information. Land Bank (your government custodian) also consistently sends a statement as to current cash. So far, my PERA account has posted a tiny bit of profit at 2% after the first year, which isn’t bad, but doesn’t really call for excitement either.
As was my experience in buying mutual fund shares, a UITF is not transparent as to where the fund is invested (what particular equities were bought at what price, where do the dividends go?) and the costs borne by the investor (how much are we paying the fund manager?). Nevertheless, due to the tax benefits of PERA (estate tax-free proceeds when you die, income tax-free when you start receiving it as pension at 60 years old), you will still come out ahead. Thus, I will be buying more units into PERA probably in June or July. In order to save on funding costs (you’re charged certain amounts every time you buy in to your PERA account) I fund it once a year. Deposit a huge amount yearly and get it over with. It is also ideal that you fund your PERA yearly as there are yearly maintenance fees charged to your account, which might whittle what little profit is in there.
With retirement feeling so remote at the moment, it isn’t surprising why many find it challenging to save up for it.
Have you calculated your net worth lately?
To the third million,
*1 USD = PhP 52.00
**Depreciated by 20%. Cars depreciate by 20% the first year and 10% for every year thereafter until its 5th year. Found this useful car valuation tool at omni
***Don’t forget to account for 10% withholding tax on interest of cash deposits, which is an additional drain on cash.