Zero Interest is never Zero Interest.

I was reading the newspaper yesterday and noticed the huge amount of zero per cent instalment sales that are being advertised by stores selling laptops, desktop computers, phones and other electronic gadgets.

Let me tell you something about zero per cent. It’s not zero per cent, it never was, it never is and it never will be! I'm going to give you a quick lesson about the behavior of retailers and distributors of electronic equipment - all they want is to 'turn' their inventory as quickly as possible. This means that they are after the quickest possible sale and to collect the money as quickly as possible so that they can buy more inventory and sell it again.

With this in mind do you think they are willing for you to have possession of their product and have you pay for 6 months or 1 year without interest? No way! This is where the credit card companies come in. Long ago they said - ' hey we can make your products sell faster if you do it on instalment basis, we will give you the money up front and collect from the buyer but this is what you have to do...'

• Step 1 - give us a discount on the retail price on each product. But we will still charge the normal retail price. We get the discount. Electronic equipment has high margins on their products so they said yes.
• Step 2 - if our earnings are still not enough then increase the price of your retail price. We get the increase in price. Do you really know the price you should pay for a TV or computer or cell phone? Price variations for these types of electronic products are as different as night and day so they said yes.

Why do they do this? Because credit card companies know one very important fact. Most consumers don't see the total price. They only see the glitzy advertising campaign with all the 'beautiful' people using these gadgets and then... The MONTHLY instalment price! Then they say... Hey I can afford that! It's so cheap lang a month!

Case in point, I was all set to buy my wife a new computer with the best specifications for Christmas last year. We saw a branded desktop computer for only PHP5k a month 12 months to pay. I was about to get lured into the same trap when I happened to walk into another store to compare prices. The lady said she can have the same computer built for me for 20 per cent less with all the same parts if I bought cash. This led me to research more and I ended up getting a computer with HIGHER specifications for HALF the price!

So what's the lesson here?

1. Never buy on instalment. Even on zero per cent. If you look around a bit more I guarantee you can get the same product AT LEAST 10 per cent cheaper on CASH basis.
2. If you can't buy it in cash, YOU CANT AFFORD IT. Generally speaking there should only be 2 times you should be borrowing money in your personal life - to buy a house or a car. And I’m not 100 per cent comfortable on the car.

For more information on how I can help you email me on hoover@barongroup.com.ph.

Is jewelry is a good investment? I don't think so.

'I buy jewelry because it’s a good investment, it appreciates in value.'

Today I’m going to irritate people who buy jewelry with this reason. For the average person, jewelry is not an investment.

Jewelry is almost always 'mispriced'. What does this mean? When you want to buy jewelry for example for a wedding, from a jewelry store, or jeweler, you almost always buy it more expensive than what it’s worth. Why? Because of the jeweler's 'patong' and design.

What happens when you want to sell it? As a general rule, people don't sell their jewelry unless they need money fast. Why? Because of the emotional attachment people have with their jewelry. Either it’s a family heirloom or gift or you love the design. You just can't sell it! So when you do need to sell it or pawn it, it is for a price that is heavily discounted.

So unless you own a pawnshop or a jewelry store, jewelry is really one of the worst 'investments' you can buy.

Jewelry is also very hard to value. Have you ever tried to buy a diamond ring and try to decipher what quality the diamond is? VS, VVS? Do you know the corresponding value? What about the size? How many karats? Most people don't.

How do you know if the gold jewelry you bought is really 24k? What about the proliferation of fake diamonds?

What's more, there is no official market for buying and selling jewelry like the stockmarket for stocks hence the huge price differences.

Finally, I'm a great believer that if an asset doesn't generate income it's not an asset. And as far as I know you can't generate income from jewelry. Stocks generate dividends, bonds generate interest, property generates rent. Maybe you can rent your jewelry out! So what happens? The jewelry sits in your drawer or safe, not doing anything productive like other assets.

Don't get me wrong. I love a nice watch (which I got from my in-laws) and my wife has a small jewelry collection but it’s not part of our asset list and it’s not something we depend on for our retirement.

For more information on how I can help you email me on hoover@barongroup.com.ph.

What type of parent are you? It's your choice.

I didn't manage to write a blog last week because I was so busy with the wedding of my brother. Weddings are a great family event but a very expensive one. Weddings are a perfect example of the great difference between wealthy families and poor families.

In wealthy families, the newlywed couple often receive cash gifts, houses or cars from their parents. This provides the newlywed couple with a great start to their life together.

In poor families, the newlywed couple receive nothing and often are in debt because of wedding costs and the increased expenses that result from being married. Plus the fact that most newlyweds still have to support their parents or siblings after the wedding.

I'm not trying to state the obvious here! My message today is for the parents, especially those with young kids. Today you have a choice! When your kids get married, are you going to be the parent that gives your kids a great head start in life? Or, are you going to be the parent that has to suffer the SHAME of having to ask your kids for money? Even after they have their own family.

I know you what you are saying... I love my kids and if only times weren't so tough I could save. Listen, in the Philippines, times will always be tough. So you have to find a way to save in good times and in bad.

Luckily, you don't need much to in order to give your kids a great head start in life. Only buy your kids toys and gifts on birthday and Christmas. That's it. The money that you save from the weekly or monthly toys you buy for them should be saved. These days we are lucky, because of the imported toys from China, we can buy toys for as little as PHP50 to 100 pesos. So what happens? Our kids end up with more toys than they need!

What if you could save PHP100 a week and invest it until your kids get married? Say, 20 years from now. Invested in a mutual fund at 12% per annum compounded, you will hand your children a check for nearly PHP375,000 on their wedding day!!! What a wedding present that will be!!! Your kids will never remember that PHP100 peso toy you gave them but they will never forget the great headstart that you will give them in their new life together.

For more information on how I can help you email me on hoover@barongroup.com.ph.

Nice House, Bad Investment.

Before I start my blog I just want to send a greeting to the millions of people who made bets in the recent 300+ million lotto draw - sana binili mo na lang ng pagkain, nabusog ka pa!

For some reason over the past few days I have been talking to people who are so proud about the 'investments' they have made in the homes they live in - the upgrade to a bigger house, the furniture that they buy, and the renovations they have done. Then yesterday I read a Sam Milby article about his 'investment' in his new house in Pasig. With new renovation, brand new furniture, swimming pool and even a mini-cinema! It was a very beautiful house but I want to make it clear that when you 'invest' too much of your money into your home its not a good idea. Here's why:

• All your eggs in one basket. When most of your net worth is in one asset it becomes very dangerous. Rather than have one nice property, why not consider other investment property that can generate you good passive income.
• Depreciating Assets. Buying furniture and other electronics are not investments they are depreciating assets.
• More expensive to maintain. Having too beautiful a home not only costs you more to build but also costs more to maintain.
• It’s so nice you can't or don't want to sell it. You have put so much effort in your house that you fall in love with it and no matter what price people offer you, you don't ever want to sell it. Sayang kasi eh! Rule number 1 when you buy assets. Never fall in love with an asset! If you can never sell your house you can never unlock its value and turn it into cash for retirement.
• Hard to liquidate when you need money. Having a beautiful house is great as long as you have a steady income. But what happens when you suddenly lose your job or your business starts to slow down like what is happening right now. What then? Well ask someone who is trying to liquidate a fixed asset in a hurry and they will tell you that you can never ever get the price you thought you would get.
• It's just like a car. What do you do when you buy a second hand car? You ask, how old it is? How many km. has it travelled? Is it well maintained? Is it important if it has nice mags, spoilers or maybe a nice stereo? It is but how does it affect the price. Not by much! Its the same as a house. Not too many people care if your toilet is made from Germany or if the tiles come from Italy, or if the furniture is imported. What's important? Location and maintenance.

So what's the point. Live simply in a 'good' house. Maintain it well. Don't add the spoiler or the mag wheels. Invest the difference in something that can make you 'passive' income so you don't have to work so hard!

For more information on how I can help you email me on hoover@barongroup.com.ph.