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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

by 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.

by ukoki 10y ago

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.