BDO Easy Investment Plan (EIP) Analysis and Updates

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I have been investing and saving via BDO Easy Investment Plan (EIP) since Jan2013. Subscribed to two funds, Equity and Balanced Fund. With almost 2 years since and 23 contributions thus far, how has it fared?

First, how does BDO’s EIP work? Every month, an amount is deducted from your BDO savings account and invested in your chosen fund. The minimum amount per month is PHP1,000 while the available dates for deduction is every 5th, 10th, 15th, 20th, 25th or 30th of the month. The purchase price will depend on the closing price for that day (or if your chosen day falls on a weekend or holiday, the closing price as of the last banking day will be used). Your choice whether once a month or twice a month deduction. Every time your investment in a fund reaches PHP10,000, a UITF certificate will be given to you.

The idea behind EIP is for the investor to take advantage of cost-averaging. Or for Bo’s Truly Rich Club, this is strategic averaging method (SAM).

Cost Averaging?

Cost averaging is when Juan regularly (i.e. monthly) purchases units of an investment (whether it’s UITF, Mutual Fund or stocks), at the same amount, such that it takes advantages of the market lows (you get to buy more units), which hopefully pulls down (averages down) the regular purchases made at market highs (when you bought less units).

Same Time, Same Amount

This discipline in investing at regular intervals removes the need to time the market (good for newbies and those who don’t have time to monitor the market) as well as removes the emotions in executing every trade (greed during market runs or fear to invest when market goes south).

The need to invest the same amount is also meant to lessen the emotions involved, and to ensure that every purchase will have the same weight to Juan’s portfolio (as opposed to buying more when market is low and buying less or none at all when market is peaking, which needs good timing and training, hence not “too easy”).

Graph above shows the daily NAVPU of BDO Equity Fund (manually) compiled since Jan2013. Got the historical NAVPU from the BDO website. Quite a steep increase from Jan2013 up to Jun2013, then an even steeper drop in just one month, Jun2013 to July2013 (this was the time US Fed announced the tapering of its QE). Some more drops in Sep2013 and Dec2013 which effectively erased the market progress since Jan2013. Some recovery Jan2014 onwards.

I subscribed once a month, which are the red dots. The dotted line meanwhile is the average of all the red dots (i.e. the cost-average), and the distance from the average line to the NAVPU as of 14Nov14 is the investment gain (I just wanted to call it upside). As of this writing, my ROI in Equity Fund is 11.18%.

If Juan subscribed PHP1,000 a month, total invested amount is PHP23,000 while fund value is PHP25,571 or a return of PHP2,571. In a span of two years. Yes, quite small, but I’d say commensurate to the risk of cost-averaging, which is considerably lower than timing your own trades.

What Ifs and In Hindsight

If Juan subscribed one time big time all in by Jan2013 and sold at 2013 peak in May 15th, one would have gained a whopping 28.97%. But that’s a big what if and that’s already in hindsight (which as they say is always 20/20).

With the market trend zooming from Jan2013 to May2013, and with no idea yet that that is already the peak, do you think Juan will actually think of selling back then? Most likely not. Greed. In hindsight we know that was the peak. But on the fateful day of 15May13, it was just another bullish day. Another question will be does Juan have the cash to go all in back then? And does Juan have the appetite to go all in back then?

Now, what if Juan got enamored with all the stock market buzz, joined the fun and subscribed in May 15th? Juan would have lost money in the months that followed and is just barely breaking even by now. Or might have been terrorized and stopped the subscription by Dec2013 (to save some for Christmas) only to find out that the climb resumes come New Year.

Cost averaging will give you average returns for less risk and less stress since you just invest monthly with no care whether the market is up or down. If Juan has extra cash then by all means he could have brought more shares via a separate UITF account when the market was trending below his average (called averaging down). I do this with with another bank which has easy online UITF subscriptions.

Action Plan

My subscription goes on and hopefully the market trend does not go below my average. My action plan moving forward is to increase the frequency of my purchases. So I asked BDO to deduct from my account twice a month moving forward. This effectively doubles my investment amount, doubles the growth rate and hopefully provide better yields.

Disclaimer
This is not a paid advertisement by BDO (I wish) or a recommendation to subscribe to their EIP (well sort of, but invest at your own risk). I have other UITF too, such as with BPI.

Photo: Coins in Piggy Bank by Images_of_Money