Although I have many reservations about FI, I feel compelled to diversify a little of my investments in this class of investments. For a basic principle of asset diversification among several categories, protection against ignorance and to increase Sharpe’s index.
My first two years of wages and investments were preceded by the purchase and discharge of my simple property for housing only after that I started to invest in the stock market and I am still 100% in stock.
As my portfolio has already reached a very high value, the volatility (in the bovespa) is also high, so seeing the portfolio decrease by almost R $ 100,000.00 in a single month is not pleasant, although the companies are of quality, the fact is that If I were buying fixed income along with stocks would have a higher equity now since part of that would be in fixed income and also in real estate fund.
Investing in anything is also risky, even if the risk is minimal it exists, including savings. Let’s clarify a few things:
Fixed Income has no ballast.
That’s right, it’s money for money. There is no real asset in FI. You are lending money to intermediaries, who are going to do something and will pay you in cash.
It does not matter if they are going to grow cotton, build real estate, lend their money to other people and charge more for it or if they will clog people off taxes.
Your only return on FI is just money. These things supposedly given in ballast are not so reliable. The FGC so spoken is beautiful in theory, in practice you can wait many months to receive your money and if you receive, and knowing well how is the justice of Brazil already know right? Do you think you will win from a banker? Or the government? And imagine that great funds evaporate, cataclysm, crises, etc …? The FGC is a fund and every time you read the word “background” in some corner know that it has an end. The FGC has an end, I did not research but how to know if the FGC has money to cover ALL FI applications? What if there is a race to the banks? Or a war? I imagine the FGC will not be able to cover everything. Simple.
In the United States and Europe the fixed income is horrible, in some countries the profitability is negative and people invest in it knowing it anyway, just for the security of not leaving their money at home, in case of leaving in the banks they also charge custody (In Europe inflation is very low and this helps).
In emerging countries like Brazil, Turkey, Bulgaria, Venezuela, Peru, among others, the RF pays a higher interest rate, but inflation is also high (the official – sometimes fraudulent) and yet the intrinsic value of money Also falls in these populist and rotten-currency countries, and that even through its political and social instability the scenario may degrade ugly Argentina and Venezuela, where the coins almost disappeared, worse still in Venezuela.
Brazil’s inflation is 10% pa and the bond pays 5% net, so it gives 15% pa net or a little less, real gain you will get 4-5% pa do not be fooled. In the US, the real gain is between 3-4% also, since inflation there is 2-3% per year, so see that there is no promotion in Brazil’s fixed income, on a fixed income with high inflation nobody wins anything, which Matter are the real interest.
In the 1990s, Venezuela was among the 20 richest countries in the world. Paying well in RF. If you were a Venezuelan investor, at that time buying a 25-year Venezuelan title, how would it feel to see your money turn into dust? Anything guarantees that Brazil will be sensational until 2035 or 2050? We have seen that two terms of populist presidents suffice to sink an economy and it takes 15 years to recover. Money does not accept dishonesty.
Get rich on fixed income? I’ve seen a lot of it out there in the blogosphere. At the time of simulation is beautiful, just put everything in excel and ready, but the real world is not an excel sheet. The real world is a daily brutal war for survival, and in Brazil, even more, with numbers of civil war, health, and fifth world education. I got my foot in the back.
The Treasury Direct.
More than 600,000 Brazilians are lending money to the federal government right now through the direct treasury. Although the number is large the volume of money for these people represents less than 1% of government debt, it is an interesting fact, it would be very difficult to actually deflate on such personnel, the most likely default would be the monetary rather than the financial. The monetary default would be for hyperinflation which would make the real yield of the bonds fall.
You see that the higher the inflation, the worse the real profitability of the bonds since the government considers inflation its profit will rate him 15% on this (from 720 days).
Well, inflation replacement is not profit and this we know. So why does the government charge you? Because it’s his nature to tax everything and steal the people through taxes, this happens from Egypt, from Mesopotamia or ancient Rome.
If you have $ 100,000.00 and inflation is 10% per year and the bond pays 5% interest per year we have the following after one year.
By auto you would earn R $ 5000.00 + R $ 10,000.00 from inflation = R $ 15,000. Only that the government does not only rate the R $ 5 thousand of the interest, it will tax the R $ 15 thousand, which is a tremendous slutty, that is one of the things that pisses me off.
It is no news to anyone that the most rational in buying the securities is to buy the IPCA + principal bonds with the longest possible term. These are the titles on sale today:
Doing a simple simulation:
Ten thousand reais today, invested in this title would give me $ 150,199 in today’s values, in 2035, not bad, right?
Of these, I like the main IPCA + 2035, IPCA + 2024 main, IPCA + 2050 with coupon and the good old LFT yielding SELIC to help in the emergency reserve or to take advantage of some opportunity in the real estate market [when the volume is too big] I have a little in the savings).
This is what I call the Multiple Compensation Strategy, and I learned reading an investment philosophy book (can not remember at the moment). Of course, you can focus your strategy on one thing and give a nice cannon shot, like, “I’m retiring in 2035” so I’ll buy everything for that date. Well, okay, if it works out for you. See that the price for the sale of these bonds can vary greatly and even the profitability fall a lot, as they are very volatile, and in the extreme case you need to sell ahead of time will have a big loss.
Another thing, you will have to survive until 2035 to see the color of the money; if you die in 2030 you will never see the color of the money but if you had bought 50% in bonds maturing in 2024 you could have lived a little better for six years or Traveled more, finally taking advantage of part of your earnings, the same reasoning applies to the 2050 titles with coupons (which you will receive every semester) and when you get on the date you earn the principal (I’ll be 65 at that date) and it would be Interesting to receive a legal amount to help with my retirement.
There are debentures, LCI / LCA, CRI, CRA, real estate paper funds (which are actually a fixed income type with monthly cash flow) and infrastructure that you can buy several of them also and with less than 3- 5 different years, remembering that you will have a bigger money spin and will pay more taxes (on those who charge) and pay taxes you take longer to get rich.
I can talk a little about them later, but the core of this post is that it is prudent to diversify between various products and salaries within the fixed income.
Remember that all this is without ballast and is in R $ (REAIS) and this yes has a risk that in the long term you could consider.
Now let’s talk about EMB. When I open my account at a foreign brokerage this ETF is on my shopping list to diversify into fixed income abroad, here they call fixed income or debentures of BONDS.
The EMB is a fixed income ETF that is managed by JP Morgan. He buys dozens of fixed-income securities from emerging-country governments and packages a single product and sells them on the NYSE by charging a rate of 0.4% per year over the fund’s value, a rather high rate, but for Diversification purposes, I think it’s worth it. The EMB gives a yield of 4% pa, considering the US market, is a high rate, remembering that this will be taxed at 27.5% of the Brazilian Income Tax.
The advantage of investing in this is being diversified into debt in various currencies and governments, such as Russia, Argentina, Poland, Romania, Bulgaria, Peru, Cote d’Ivoire and others. In the last column of the table, you can see the coupon that the government of these countries pays for each title. That was the profitability of the EMB paper from December 2007 so far, noting that there are 4% pa paid in dividends:
Here below is the EMB wallet, see how many different countries, currencies and coupon rates you have inside it. The EMB will serve for the part of bonds in my portfolio of assets abroad.
There are also long-term US government BONDS that are interesting to anyone considering supplementing the dollar retirement.
See that seems like a lot, but it’s actually quite simple, and the investment horizon is for the long term and not to get too busy in the portfolio in a very quiet, pragmatic and automatic way. Such a portfolio with dozens of assets builds on a very long horizon of at least 10 years until you get to know everything and deepen your knowledge. In this way, I plan to invest in fixed income in real (mainly), dollar (second place) and other currencies of emerging countries. My position in European or Asian currencies will be in these stocks but that is for another post.
In short, study diversifying your investments in fixed income in Brazil into several fixed income assets, preferably the Treasury Direct, in different securities, preferring the IPCA + principal and long term. Make your emergency reservation first (include in your emergency reserve a high amount to spend on health, private surgery or long-term ICU hospitalization for example, a sickness in a family member of yours who does not have a health plan and maybe someone asks you Money – off for at least another 12 months of paid bills, the more the better). This emergency reserve can be part of the savings and part of the LFT if it is too large.
In addition to diversifying into fixed income in Brazil, you need to protect your assets in currencies and assets abroad, setting up a portfolio of shares and fixed income abroad (do not stay 100% in foreign shares). There are RF assets abroad such as the EMB which I have shown here and the US Treasury bonds themselves. Fixed income securities of governments in Western Europe (richer) pay very little and in my view are not worth it.
This month I bought 300 shares of BB Seguridade (BBSE3) and in the next contribution, I will buy some of the IPCA + 2035 main Treasury to start slowly in Fixed Income. Living and learning.