Alternate Title: Put Your Skin in the G
So you’ve moved to Latin America and you’re full of romantic dreams of your country’s future. You believe you got in at the right time because this place is going to freakin blow up.
You see opportunity everywhere, but how do you capitalize on it? How do you make money off all these rosy signs that you see?
The best way to position yourself for the economic rise of your country is to simply be there. Make the contacts, ply your trade and be there. As long as you don’t leave, you’ll ride the tide.
But people want to know, how can they invest in this booming place? It’s set to explode! How can they cash in on this, put their money where their mouth is? As the popular adage of the day goes, how can they put “skin in the game” (besides their physical presence and the emotional blood, sweat and tears it requires dealing with these people)?
American investment bank BlackRock has created hundreds of ETFs (exchange-traded funds) for retail investors like you to speculate on categories ranging from safe havens like gold to high-risk bets like frontier markets.
Among their emerging-market and even frontier-market (the politically correct term for shitholes) offerings are country-specific ETFs. For example, there is an iShares Peru. I own some. I have a little skin in the game.
These funds aim to replicate the overall economy by owning stock in a diverse and representative selection of the country’s big companies. For example, here is a nifty pie chart of the Peru ETF.
As with most emerging markets, a few companies will make up half of the ETF. In this case, the country’s largest bank Credicorp (commonly known as BCP, also owns MiBanco, Pacifico Seguros and Prima AFP) makes up a quarter of the fund. Banking reaches just under a third of the total with the second bank IFS (Interbank) and Banco Continental (BBVA).
Two of the biggest mining companies (Buenaventura and Southern Copper) make up 18% of the mix, but if you accounted for all mining it would be over 40%, appropriately because Peru is a mining country. Other industries represented such as construction and retail reflect the growing strength of the middle class.
It has appreciated almost 20%, which is really good, and which I’ll attribute to pure luck. I just happened to get a bunch of cash via a fairly new Ameritrade account. I didn’t want to go researching equities, so I just dumped it into EPU.
As cool as investing in your new country is, or having skin in the game, I think it’s time to get out. Not a good time to get my ass out of Peru – not my blood, sweat or tears – but time to get my money out of this financial instrument which imitates Peru. There was a lot of easy money for a long time due to loose monetary policy in the States and Europe, but that’s coming to a close. Not only is there a correction coming to emerging markets, there’s a fucking trade war looming.
Don’t think so? Check out iShares ETFs to find your country. Big countries like Mexico and Brazil have two options each. Here’s Colombia for my friends there. If you live in a city state there won’t be one for your country, but you can get in on the Latin America 40. See the full list of emerging-market ETFs.
And with that said, I have to give you my legal disclaimer that this is not investment advice. And my disclaimer is legendary.
Content on Expat Chronicles is for entertainment purposes only. You should not construe it as legal, tax, investment, financial or other advice. I just got an Ameritrade account in 2016, with a low-four-digit amount of dollars in it, so I’m the last motherfucker to listen to how to invest your money. Nothing here is a solicitation, recommendation, endorsement or offer. I don’t care what you do with your money. Go buy a house for all I care.
All information on this site is general in nature. Nothing constitutes professional and/or financial advice, and it sure as hell isn’t a comprehensive or complete look at ETFs. I am not a fiduciary for your use of the shit I write. You alone are responsible for evaluating the risks associated before making any decisions based on it. In exchange for reading me, you agree not to hold me liable for any claim or damages.
Investing in exchange-traded funds or any other security involves risk. You could lose everything. If you borrow to buy in, you could lose your shirt. Foreign investing involves special risks, including greater volatility and political, economic and currency risks and differences in accounting methods. And of course my past investment performance is no guarantee of future performance. Not that it’s that stellar to begin with if you consider how little time and money I have in the game.
Real Estate: The Elephant in the Room
Inevitably some gringo throws out the idea of “investing” in real estate in their new country. Where to begin?
First, back up and read any introductory personal-finance books out there in order to get “real estate” out of your mind when thinking about “investing.” If you want to buy a house to live in, kick ass. Just don’t call it an “investment.”
Sure, I can “invest” in a bicycle to get around the city. I can “invest” in a nice pair of shoes that will last me a long time. I can even “invest” in a car which I’ll be able to sell when I’m done with it. Not the same, you say? A house is a speculative investment, more like baseball cards or bars of gold? Almost, but not really. Because real estate usually costs a hell of a lot more, takes a hell of a lot more time to sell and has costs of ownership.
When we say “investment,” we generally mean passive income. Give up money upfront in exchange for more later, while doing nothing. Whether that means a lump payout at the end or a slow trickle and then a lump payout, “investment” means securities: stocks and bonds. If you’re thinking about investing in anything that’s not securities, it’s more helpful to think of it as “starting a business.”
If your plan is to buy a house and pay the mortgage by renting it out on Airbnb, you’re not investing so much as starting a hotel business. You’re now a hotelier, tasked with all the business activities a hotelier is engaged in. And if you’re going to rent the place out, you’re now in the property-management business, engaged in all the business activities of an apartment company.
Not only do you have new work to do, you also have new costs to cover such as property tax, maintenance and insurance. Hell, you may have to pay interest if you took out a loan for your new real-estate business.
Anyone trying to portray real-estate investments as something different than investments in, say, a restaurant, retail store or massage parlor is probably trying to convince you to buy a house. Or they’re trying to convince you about how smart they are for having done it.
There’s a reason the world’s investment banks don’t buy and sell real estate. It’s a hell of a lot of money upfront, it’s risky and there’s not much profit in it. Their real-estate divisions focus on brokering deals – providing you services to buy your real estate. The product being the financial service. Why bother with the real estate itself?
My favorite anecdote comes from Warren Buffet’s biography. He was a millionaire early in life and his wife insisted on them buying a house in Omaha for their family to live in. He resisted because it’s “a waste of money,” but ultimately broke down because he was married with children and that’s how it goes.
That’s all, end of rant. Now go buy a house you expat degenerate, because anybody who doesn’t have four walls covered with art is running from something.
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