Filipinas Mag

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Moving into the second half of 2009, we are clearly faced with new economic realities. While volatility in the equity markets has subsided substantially, investors are still wary of the uncertainties to come. Despite the historic advances off the March lows, enormous losses still encumber individual portfolios. Furthermore, a fair amount of people, including those in our very own Filipino community, failed to participate in the recent gains. Investors that were generally quick to rush to safety while the market deteriorated were often slow to react as this rally unfolded.

Unfortunately, this is a classic example of the pitfalls associated with trying to time the market. Over the long term, most people were taught that investing was the best route to a successful financial future. However, after selling in that moment of panic, few developed a recovery strategy. Times of crisis expose our lack of preparation or a lack of conviction in our plan. Rash decisions may provide instant relief from the uncertainty but few people take into consideration the enormous impact that their decisions have over the long term.

The 2000 Census pegs the Filipino population in the U.S. at approximately two million. With books like Filipino Americans estimating that over 230,000 Filipinos immigrated here between 1965 and 1975 alone, one can presume a significant amount of the population is in or approaching retirement. These demographics, compounded with the lack of financial literacy make the prolonged recession a major issue for our aging Filipino community.

Individuals at that stage of life tend to be affected most in times such as these. Often, they face the reality of dwindled portfolios with presumably little time to recover. As they shift focus to preserve principal, they fail to recognize the true need for growth. This is a problem for two primary reasons, extended life expectancies and inflation.

According to the Social Security Administration, the average 60-year-old male can expect to live for an additional 20 years; while the average 60-year-old female can expect to live another 24. With life expectancies ever increasing with advances in medical care, people are spending more years in their retirement. At times, the length of retirement can equal or exceed the actual amount of years spent in the workforce. People tend to neglect this fact, and often underestimate how long their funds will need to last.

Another major factor is inflation. According to the Bureau of Labor and Statistics, inflation averaged about three percent annually in the 20th century. Therefore, $1.00 at the beginning of 1940 had the same purchasing power as $15.01 at the end of 2008. While we may not see average historical inflation rates for some time, one must address the possibility that goods and services will cost more in the latter years of our lives. Thus, it should be evident that preserving principal is simply not enough.

From Filipino Americans who are aware of these concerns, yet choose to neglect financial planning, I often hear of their intentions to return to the Philippines. Filipinos are fortunate to have this option but I also feel that it may provide a false sense of security. The willingness to return may be there now, but when family or other factors come into the picture, they may ultimately choose to spend their golden years elsewhere. Ideally, through proper financial planning, they will have that option.

The current economic situation is forcing many of us to reevaluate our long term plans. Although circumstances vary, there are things we can all do to get back on track:

1) Evaluate your objectives - Will you need access to these funds in the short term or will they be drawn over a significant period of time? Determining when the assets are needed may put things in perspective.

2) Assess your risk tolerance - Can you handle volatility? What will let you sleep soundly at night? If the portfolio is not properly matched to your tolerance, it may force you to abandon your plan prematurely.

3) Become financially literate - Take the time to understand what investments and accounts are appropriate to achieve your objectives in accordance with your risk tolerance. The higher comfort level you have, the more predictable the plan becomes.

4) Act rationally - The media coverage and the water cooler talk can put doubt into the minds of even the most disciplined investors. Understand that each situation is unique and have confidence that you created a well thought-out plan.

As members of the Filipino community, it is time we embrace financial planning and its importance in achieving our goals. Though difficult times such as these force us to revisit what truly matters, they also remind us that we need to take control of our own situations.

Anthony M. David is a Senior Investment Management Specialist and Second Vice President of Wealth Management at Morgan Stanley Smith Barney. He was the 2008 Filipinas Achievement Awardee for Youth Leadership.

Anthony M. David’s website: http://fa.smithbarney.com/anthonydavid/