The Road to Financial Freedom Starts Here!

Saturday, May 19, 2012

Mailbag Cleanup: Business Registration, Bond Yields, and Risk and Return

DEAR INVESTOR JUAN


I've been very busy these past few weeks preparing for a conference (which I'll hopefully have time to talk about in the near future) that I've barely had time to meet my monthly post quota and no opportunity to respond to emails from readers. I'll try to make up for this temporary dereliction of duty by answering some of these neglected emails in this post.

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Dear Investor Juan,

I enjoy your blog; it's very interesting and helpful for someone like me who wants to have a financial knowledge.

I would like to ask, do I need to register (I know somehow I need to) a business that operates on the Internet? I'm located abroad, my server is here but the domain I'm using is for Philippines because that is my target market. I talked to someone about it, he said I need to, because its a business. But I don't know where to register it: here or Philippines?

Thank you and more power to your blog.

Anonymous


Dear Anonymous,

Thanks for liking the blog, and sorry for the late reply.

Are you already operating? And do you actually need/use an office for operations, where you are and/or in the Philippines? If you don't, I don't think there's any need to register at this point, especially if you have been able to manage without it. The primary benefit of being a registered entity is that it improves your credibility (by being able to issue receipts, for example) and let's you enter above-board transactions (like getting a business loan). While you may be able to run your business without being registered at this point, you definitely have to do it eventually as your business becomes bigger--both where you are and in the Philippines.

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Dear Investor Juan,

Would like to thank you for your consistent updating and dedication to your blog. I've only started reading your blog for the past month, and I've already learned a lot from it. I have a follow-up question regarding your post on bonds.

Does it imply that as long as we get the bond with the highest yield in the market, would that mean we're getting the best value? Since my understanding of yield is, if you hold this bond until maturity, then you would earn this percentage per year.

Thanks!

Regards,
Bash


Dear Bash,


Sorry for the late reply.

You're right, you would earn the coupon every period as long as you own the bond. The problem is if interest rates go up and make coupons on newly-issued bonds higher than what you receive; missing out on the opportunity to earn higher coupons when interest rates go up is what makes your bond "lose" value. So if you buy a high-yield bond--that is, when interest rates are very high--the price of your bond will only go down if interest rates go even higher; if you have reason to believe that this is unlikely, then yes, buying bonds when yields are high (or bond prices are low) would be a good strategy.

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Dear Investor Juan,

I currently have an extra 100k and I want to use it for investment but I don't know where to start. I'm looking at investing it with BPI and ask them which fund is currently producing higher returns. Do you have any suggestions?

Thanks.

Jon


Dear Jon,

Sorry for the late reply.

Historically, equity funds (i.e., UITFs and mutual funds) generate higher returns than bond or money market funds, but also involve a higher likelihood of losing principal. So in choosing an investment, you might also want to consider the risk of losing money apart from the potential of earning high returns.