Don’t chase after returns
Saan ba pinaka malaki ang kita?” (Where can I find the highest return?)
That is the question asked us often when it comes to personal finance. Whether it is a stock, real estate, cryptocurrency, mutual fund, unit investment trust fund (UITF), single pay variable unit-linked insurance, gold or even Pag-ibig MP2, many Filipinos are constantly searching for the investment that delivers the highest return.
Many times, however, this is the road to financial perdition.
Behavioral economics, a field that studies how emotions and psychological biases affect financial decisions, teaches us that people are not always rational investors. We are influenced by stories, headlines, social media and what everyone around us is doing.
One of the most dangerous behavioral traps is recency bias or the tendency to place too much importance on recent events while ignoring long-term realities. Investors assume that what performed well recently will continue performing well in the future. This explains why instead of buying low and selling high, uninformed investors buy high and sell low, thus being blinded by the fact that when prices are hot, such prices are most likely close to their peak levels.
Behavioral economists also describe another phenomenon known as herd mentality, which can also be loosely called heard mentality. Instead of making independent decisions, people simply follow the crowd. If relatives, friends, office mates, influencers or online groups are making money from a particular investment, many assume it must be a good idea.
These tendencies are not unique to Filipinos. They are present worldwide.
Research in behavioral finance consistently shows that investors who frequently jump from one hot investment to another often earn lower returns. Consider what happened during various investment booms.
During the global technology stock boom, many investors bought internet-related stocks only after hearing success stories from others. During property booms, buyers convinced themselves that real estate prices could only go up. More recently, countless investors entered cryptocurrencies after reading about overnight millionaires. But in many cases, early participants profited handsomely while latecomers suffered losses.
That is why sellers of financial products often include in their marketing collaterals the warning that past performance is not a guarantee of future return. A basketball player who scored 40 points last night is not guaranteed to score 40 points tomorrow. Similarly, a mutual fund, stock or cryptocurrency that gained 50 percent last year is not guaranteed to gain another 50 percent this year.
Even the ranking of best performing Philippine-equity invested mutual funds and UITFs that the Personal Finance Advisers Philippines Corporation tracks changes year to year.
Markets move in cycles. Economic conditions change. Interest rates rise and fall. Government policies evolve. What worked yesterday may not work tomorrow.
Another behavioral bias called overconfidence makes matters worse. After a few successful investments, people begin believing they can consistently identify the next winner. They become convinced they possess special insight. As a result, they concentrate their money in a handful of investments instead of diversifying.
Yet research shows that overconfidence is one of the most common behavioral biases among investors and often contributes to poor decision-making. Many times, the overconfidence morphs into greed.
As a greater number of Filipinos begin investing, it becomes even more important to avoid behavioral mistakes that have hurt investors in other countries for decades.
Unfortunately, successful investing is usually boring. Most financially successful investors did not become wealthy by constantly chasing the year’s best-performing asset. Instead, they focused on proven principles: regular investing, diversification, patience, discipline and alignment with long-term goals.
The objective of investing is not to own the investment that generated the highest return last year but to achieve your financial goals. If your goal is retirement, your strategy should support retirement. If your goal is funding a child’s education, your investments should support that objective. If your goal is financial independence, your portfolio should be designed to get you there.
The better question is not “which earned the highest return?” but “which gives me the highest probability of reaching my goals?”
So, the next time someone tells you about an investment that has doubled or tripled in value, resist the urge to immediately jump in. Pause. Ask whether the investment fits your goals, risk tolerance and financial plan. Because in investing, the people who win are rarely those who chase returns. They are the ones who stay focused on their destination.
Send questions via “Ask a Friend, Ask Efren” free service at personalfinance.ph, SMS, Viber, Twitter, LinkedIn, WhatsApp, Instagram, and Facebook.
Efren Ll. Cruz is a registered financial planner and director of RFP Philippines, seasoned investment adviser, bestselling author of personal finance books in the Philippines and a YAMAN Coach. To subscribe to the My PF App, email masterclass@personalfinance.ph. To learn more about personal financial planning, attend the 117 th RFP Program this August 2026. To inquire, e-mail info@rfp.ph or text at 09176248110.
