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Here in Brazil we have it easy. The most boring funds (the ones which track the interbank rate - CDI) easily return around 12% per year (depending on the admini

by cesarb 10y ago

Here in Brazil we have it easy. The most boring funds (the ones which track the interbank rate - CDI) easily return around 12% per year (depending on the administration fee; the smaller the administration fee, the higher the return). With the inflation around 6% per year, this gives around 6% returns before tax. If you stay with the fund for at least two years (and it's of the correct kind), the tax rate is 15% over the gains, so you have an after-tax return of around 5% per year above inflation. And that's for a fund which basically never gives negative returns. You can go further and buy government bonds directly, through the Tesouro Direto system. Those indexed by the SELIC rate (which is sort of related to the CDI) are currently around 13.5% per year, before administration fees and taxes (in fact, the boring funds I mentioned above mostly invest in these SELIC-indexed government bonds). This will change when (and if) rates get lower, but so far, investing in these funds or bonds is the simplest (and one of the best) way to have passive income.

ukoki 10y ago
12% sounds great but that's about how much the BRL has decreased against the dollar over the last five years. Just holding USD cash would have gotten you about the same returns. https://www.bloomberg.com/quote/USDBRL:CUR https://www.bloomberg.com/quote/USDBRL:CUR
- cesarb 10y ago
  In my experience, holding actual physical USD cash is a bad investment; older bills are worth less (exchanges will give you something like 10%-30% less for older bills, if they are accepted at all), so the longer you hold it, the less it's worth. On the other hand, there are funds which track the USD; see for instance http://www.bb.com.br/docs/pub/siteEsp/dtvm/dwn/inf04128893.pdf http://www.bb.com.br/docs/pub/siteEsp/dtvm/dwn/inf04128893.p... . That fund had a return of 150% in the last 5 years; however, it had a return of -12.58% this year. The CDI had a return of only 64% in the last 5 years, but that's a consistent return, with no negative months. This year the CDI had a return of 12%, so if you had in January invested in a fund which tracks the CDI, you'd be way ahead of someone who invested in a fund which tracks the USD. In other words: yes, investing in USD has a higher return, but that return also comes with a higher risk. I don't buy food with USD, I buy food with BRL, so the BRL is the one that matters here.
  - ericd 10y ago
    Older bills are worth face value in the US, why does anyone take a 30% discount on them?
    - cesarb 10y ago
      They are worth face value in the US, but not outside of it. See for instance this question: https://travel.stackexchange.com/questions/25959/converting-older-united-states-dollar-bills https://travel.stackexchange.com/questions/25959/converting-... Instead of simply not accepting the bills, some places take a discount to offset the risk that they're fake. The older the bill, the greater the chance that it's a counterfeit.
      - ericd 10y ago
        Interesting, thanks for explaining. I thought it might be due to the risk of counterfeit, but I thought there must be some way of verifying still. Sounds like if there is, it's out of reach of many of the money changers.
  - ukoki 10y ago
    You buy food in BRL yes, but when the BRL has a massive swing up or down food prices can swing the opposite way to compensate. If BRL drops 30% and food prices rise 30% you're going to be in a bad situation — dollars are likely to be far more stable
    - cesarb 10y ago
      The packaging for every food has the manufacturing location printed on it, and almost every one I've seen is produced somewhere in Brazil, often in a nearby state. So, it's the opposite: the price for the food I buy has a greater chance of tracking the BRL than the USD. Fuel is also produced locally (by Petrobras). And when the food prices do increase, consider that the food price is a big component of the inflation index, so both IPCA and later SELIC would rise to compensate. The pain point is electronics. Almost all of it is imported, or has imported components. That one does tend to track the USD.
DangerousPie 10y ago
You probably know this, but it's always important to keep in mind what causes such high interest rates. A high interest rate is a signal that lenders are wary of lending money to the borrower because of an increased risk of default/inflation. That's fine as long as you are aware of this, but don't think you're getting a "better deal" than someone investing in a boring 1% German government bond. That 12.5% you're getting in addition represents the increased risk that the Brazilian government might default on their debts or the currency might inflate enough to negate the advantage.
- madaxe_again 10y ago
  This is all true - and if you look at the UK gilt price/yield over the last six months it demonstrates this aptly - yields started to increase in June as everyone tried to sell their gilts. As you say, the yield only happens if the government pays the nominal at the expiry - and if yields are high it's because the market lacks confidence, and people are selling for less than nominal.
- meira 10y ago
  Brazil has much more foreign reserves than most Europeans country. Our interest rate isn't high because of default risk, actually is more the opposite - rip off the country.
- cesarb 10y ago
  I live in Brazil, so if the government defaults, every other investment I could have made here would also crash, and the local economy with them. It's not called the "risk-free" interest rate for nothing: it's the lowest risk investment one can get within Brazil. Corporate bonds, for instance, will have a higher return, due to their higher risk. As for inflation, when it increases the SELIC/CDI rates tend to rise with it too. And if you're afraid of that (it hasn't been long since we had a hyperinflation, so a lot of people still are), another government bond (NTN-B) has a return of inflation (measured by the IPCA index) plus a pre-fixed component (currently around 6%). Due to its pre-fixed component, it has some interest rate risk (if the interest rate rises, its present value drops, and vice-versa), but that's not a problem if you intend to keep it to term. And, actually, the high interest rate is set by the government, as a way to control the inflation, so it's not as linked to the risk of default as one might think. The government could decide to lower the interest rate (and it has: a few years ago, it was set lower, but that led to the currently higher inflation, so the government increased it again to contain the inflation).
madaxe_again 10y ago
Man alive. Here in the UK a five year treasury bond yields precisely nothing - potentially less than nothing. I have a mountain of cash and nothing to invest it in here. Even property doesn't present a meaningful yield any more. It also doesn't look like it's going to get better, just worse - so as far as I can discern the best course of action is just to spend it before it becomes completely valueless. To stay ahead of inflation here I'd have to have a 10% yield at least - official CPI figures grievously underreport it, as the baskets of goods they use don't account for the shrink ray.
- ukoki 10y ago
  If you don't trust UK markets and gilts, it's easy to buy the same ETFs the Americans are buying (though you may pay a little more due to currency conversion). Vanguard also has non-UK ETFs denominated in GBP eg: https://www.google.com/finance?q=MUTF_GB%3AVANG_FTSE_DEV_5J6FWZ&ei=eTVNWMnwJtXGUZTPs8gG https://www.google.com/finance?q=MUTF_GB%3AVANG_FTSE_DEV_5J6...
- tormeh 10y ago
  Invest in an ACWI (all countries world index) fund. Kinda boring, but the return is ok.
- ommunist 10y ago
  What do you call a meaningful yield? Ecommerce in Russia is growing. JV?
  - madaxe_again 10y ago
    Ahead of inflation, and preferably enough that I could be bothered. Earning £100 on £1,000,000 over 20 years doesn't interest me.
- dorfsmay 10y ago
  A quick google search shows UK inflation for the year at .9%. Why are you saying you need a 10% yield.
meira 10y ago
I was going to say this. It could even becomes a startup or consultancy business to support brazillian tech workers to build a fortune the same way the rich ppl do here.

by cesarb 10y ago

ukoki 10y ago

12% sounds great but that's about how much the BRL has decreased against the dollar over the last five years. Just holding USD cash would have gotten you about the same returns. https://www.bloomberg.com/quote/USDBRL:CUR https://www.bloomberg.com/quote/USDBRL:CUR

cesarb 10y ago
In my experience, holding actual physical USD cash is a bad investment; older bills are worth less (exchanges will give you something like 10%-30% less for older bills, if they are accepted at all), so the longer you hold it, the less it's worth. On the other hand, there are funds which track the USD; see for instance http://www.bb.com.br/docs/pub/siteEsp/dtvm/dwn/inf04128893.pdf http://www.bb.com.br/docs/pub/siteEsp/dtvm/dwn/inf04128893.p... . That fund had a return of 150% in the last 5 years; however, it had a return of -12.58% this year. The CDI had a return of only 64% in the last 5 years, but that's a consistent return, with no negative months. This year the CDI had a return of 12%, so if you had in January invested in a fund which tracks the CDI, you'd be way ahead of someone who invested in a fund which tracks the USD. In other words: yes, investing in USD has a higher return, but that return also comes with a higher risk. I don't buy food with USD, I buy food with BRL, so the BRL is the one that matters here.
- ericd 10y ago
  Older bills are worth face value in the US, why does anyone take a 30% discount on them?
  - cesarb 10y ago
    They are worth face value in the US, but not outside of it. See for instance this question: https://travel.stackexchange.com/questions/25959/converting-older-united-states-dollar-bills https://travel.stackexchange.com/questions/25959/converting-... Instead of simply not accepting the bills, some places take a discount to offset the risk that they're fake. The older the bill, the greater the chance that it's a counterfeit.
    - ericd 10y ago
      Interesting, thanks for explaining. I thought it might be due to the risk of counterfeit, but I thought there must be some way of verifying still. Sounds like if there is, it's out of reach of many of the money changers.
- ukoki 10y ago
  You buy food in BRL yes, but when the BRL has a massive swing up or down food prices can swing the opposite way to compensate. If BRL drops 30% and food prices rise 30% you're going to be in a bad situation — dollars are likely to be far more stable
  - cesarb 10y ago
    The packaging for every food has the manufacturing location printed on it, and almost every one I've seen is produced somewhere in Brazil, often in a nearby state. So, it's the opposite: the price for the food I buy has a greater chance of tracking the BRL than the USD. Fuel is also produced locally (by Petrobras). And when the food prices do increase, consider that the food price is a big component of the inflation index, so both IPCA and later SELIC would rise to compensate. The pain point is electronics. Almost all of it is imported, or has imported components. That one does tend to track the USD.

DangerousPie 10y ago

You probably know this, but it's always important to keep in mind what causes such high interest rates. A high interest rate is a signal that lenders are wary of lending money to the borrower because of an increased risk of default/inflation. That's fine as long as you are aware of this, but don't think you're getting a "better deal" than someone investing in a boring 1% German government bond. That 12.5% you're getting in addition represents the increased risk that the Brazilian government might default on their debts or the currency might inflate enough to negate the advantage.

madaxe_again 10y ago
This is all true - and if you look at the UK gilt price/yield over the last six months it demonstrates this aptly - yields started to increase in June as everyone tried to sell their gilts. As you say, the yield only happens if the government pays the nominal at the expiry - and if yields are high it's because the market lacks confidence, and people are selling for less than nominal.
meira 10y ago
Brazil has much more foreign reserves than most Europeans country. Our interest rate isn't high because of default risk, actually is more the opposite - rip off the country.
cesarb 10y ago
I live in Brazil, so if the government defaults, every other investment I could have made here would also crash, and the local economy with them. It's not called the "risk-free" interest rate for nothing: it's the lowest risk investment one can get within Brazil. Corporate bonds, for instance, will have a higher return, due to their higher risk. As for inflation, when it increases the SELIC/CDI rates tend to rise with it too. And if you're afraid of that (it hasn't been long since we had a hyperinflation, so a lot of people still are), another government bond (NTN-B) has a return of inflation (measured by the IPCA index) plus a pre-fixed component (currently around 6%). Due to its pre-fixed component, it has some interest rate risk (if the interest rate rises, its present value drops, and vice-versa), but that's not a problem if you intend to keep it to term. And, actually, the high interest rate is set by the government, as a way to control the inflation, so it's not as linked to the risk of default as one might think. The government could decide to lower the interest rate (and it has: a few years ago, it was set lower, but that led to the currently higher inflation, so the government increased it again to contain the inflation).

madaxe_again 10y ago

Man alive. Here in the UK a five year treasury bond yields precisely nothing - potentially less than nothing. I have a mountain of cash and nothing to invest it in here. Even property doesn't present a meaningful yield any more. It also doesn't look like it's going to get better, just worse - so as far as I can discern the best course of action is just to spend it before it becomes completely valueless. To stay ahead of inflation here I'd have to have a 10% yield at least - official CPI figures grievously underreport it, as the baskets of goods they use don't account for the shrink ray.

ukoki 10y ago
If you don't trust UK markets and gilts, it's easy to buy the same ETFs the Americans are buying (though you may pay a little more due to currency conversion). Vanguard also has non-UK ETFs denominated in GBP eg: https://www.google.com/finance?q=MUTF_GB%3AVANG_FTSE_DEV_5J6FWZ&ei=eTVNWMnwJtXGUZTPs8gG https://www.google.com/finance?q=MUTF_GB%3AVANG_FTSE_DEV_5J6...
tormeh 10y ago
Invest in an ACWI (all countries world index) fund. Kinda boring, but the return is ok.
ommunist 10y ago
What do you call a meaningful yield? Ecommerce in Russia is growing. JV?
- madaxe_again 10y ago
  Ahead of inflation, and preferably enough that I could be bothered. Earning £100 on £1,000,000 over 20 years doesn't interest me.
dorfsmay 10y ago
A quick google search shows UK inflation for the year at .9%. Why are you saying you need a 10% yield.

meira 10y ago

I was going to say this. It could even becomes a startup or consultancy business to support brazillian tech workers to build a fortune the same way the rich ppl do here.