The widow’s mite

“Where can I place my P100,000 funds?” What are the investment options for a risk-averse widow, in this time of rising inflation? “Since you do not trust equities or corporate bonds, and not even the managed pooled funds, perhaps the only easily withdrawable and guaranteed (insured) placement would be a time deposit in our bank,” the account officer sheepishly offered. “And how much interest will the bank pay me?” The account officer was definitely embarrassed to say, “0.88%, Ma’am, or P704 net of 20% final withholding tax, for 360 days.”
Yes, the bank should be embarrassed.
With banks estimated to be enjoying continued annual net profits of 15% to 17% in the next two years (bworldonline Aug 24, 2017), it is unconscionable to give 0.00704 net profit after tax on a widow’s time deposit. But the bank always makes money for itself, in good times and in bad.
Yet it can be a problem, too, when the market is awash with cash. The objective and dispassionate law of supply and demand simply urges the lower price offer for deposits and investments, when there is already so much money for the banks to lend out, in the uneasy times of unpredictable fiscal and monetary changes here and abroad.
From the US financial crisis of 2009, and through the change of administration, various US Fed decisions and indecisions have made the affected financial world continually nervous. There is also the political noise globally, with strongmen-leaders further agitating the pandemic and progressively growing terrorist-religious/political threat.
Yet indefatigable marketing and promotions can “photoshop” even the direst “doom and gloom” scenarios for financial products and services to savers and investors. But even for the self-serving “prophets of boom” that financial traders and brokers, and credit rating agencies might be — surely deep within, they feel the swaying volatility in the markets, though of course they can gamble more stoically with funds not their own.
“Try and find me T-Bills or RTBs,” the frugal widow said. At least government securities, Treasury Bills (short term — maturing within one year) and Retail Treasury Bonds (medium to long term), are “safe haven” in times of market volatility.
On the KYC (Know your client) info sheet, she declared to her bank that her priority for investment is always safety of principal; sureness of income stream (interest earnings more than in-out trading gains); and that it should not be difficult to withdraw even if only partially, amounts needed for emergencies.
Being a senior citizen, the careful widow did not want to invest more than five years in a financial instrument or product. She is “Class A-B”, the account officer said, meaning that the widow is risk averse, but not really depending on interest income or dividend cash flows as critically necessary to her day-to-day survival.
In mid-June, the government offered the 21^st tranche of RTBs for minimum denominations of P5,000, with a coupon rate of 4.875%, and to mature in three years, in 2021 (BusinessWorld June 11, 2018). Perfect investment-savings for the cautious group of “widows and orphans.” And the market-feel of banks and financial institutions for strong demand from the greater public pushed total tenders of P92.8 billion at the rate-setting auction for which the Bureau of Treasury (BTr) accepted P66 billion or about 70% against total tenders (Ibid.).
Earlier in the month, the BTr fully awarded close to P10 billion of 91-day T-Bills at an average rate of 3.296% and 182-day T-bills at an average rate of 3.677%, but accepted less than half or P4.239 billion 364-day securities at 4.3% as the market showed preference for shorter-dated securities amid concerns on rising inflation and interest rates (The Philippine Star June 5, 2018). National Treasurer Rosalia de Leon said results of the auctions reflected the market’s preference for short-term securities considering the inflationary environment, as well as expectations of policy rate hikes in the US (Ibid.)
The market’s overbearing inclination towards short-term securities and the widow’s gingerly step to the 3-year RTBs, as examples, reflect the apprehensions of the investing public of the economy vis-à-vis their own economic situation — what will happen to me and my savings and investments in the near and medium-near future — at most, in the next five years, when the governance of the country will have been turned over to an administration hopefully more predictable and less impulsive? Let’s face it — despite the so-called surveys saying “all’s well,” the fears of uncertainty and unknown risks are there, deep in the minds and hearts of the ever-smiling, laughing, and joking Filipino — especially those that have less in life and wherewithal — as the widow analyzing her very few options for less risky investment in these tremulous times.
Consider that even the safest haven of government securities give from 2.63% to 3.44% net of tax (T-bills) and 3.9% net of tax (3-yer RTBs) — which net yields are below the current announced inflation rate of 4.6% as of May.
When net of tax GS rates are further adjusted for inflation, this would mean that the widow is actually not earning any money (negative 0.7%) from lending her P100,000 to the government. But she has no safe choice but to subsidize the government for the grandiose P8.44-trillion development plans of “Build, build, build” structured on the TRAIN (Tax Reform for Acceleration and Inclusion) Law and its expected $1.8 billion in revenues (first year — philstar.com Dec 17, 2017), with whatever shortfall to be from a stepped-up “Borrow, borrow, borrow” from domestic and foreign lenders.
The Bangko Sentral ng Pilipinas and the National Economic and Development Authority, explained that the TRAIN Law accounted only for 0.4% of the five-year high 4.5% inflation rate in April [4.6% in May] (CNN Philippines May 30, 2018). It is the increase in world oil prices, and the weakness of the peso, government economists said (Ibid.). But with the world oil price increase, “the Philippines has the fastest inflation among the six biggest Southeast Asian economies with price growth at a 5% high (Bloomberg.com June 5, 2018). There are more major reasons for the compounding of inflation upon inflation in the turbulence of the present Philippine economic and political working environment.
If the TRAIN Law indeed espouses financial inclusion for the less-privileged Filipinos, there should be options and equitable returns for investors: so their capital can be made useful here in the country, for them and the common good of national development.
In the Bible is the story of “The Widow’s Mite” (Lk 21:1-4), where the widow put into the treasury her two mites (low-denominated coins) — all she had — while the rich proudly contributed grand gifts which were actually a small proportion of their wealth.
Take not the widow’s mite.
 
Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.
ahcylagan@yahoo.com