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Outside US investing....
Do you buy CDs or Treasury equivalents in any
foreign countries? We can include mutual funds too. |
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I own two dividend oriented international ETFs, IQDG and EUDG. They comprise only a small percentage of my portfolio.
Back in the late 1970s, very early 1980s a colleague at work spent a lot of time in a small town a good ways down on the west coast of Mexico. He converted a substantial amount of his savings into pesos and deposited them into a CD or similar savings instrument in a Mexican bank as they were paying a very high interest rate, maybe 18 - 22%. Then the peso devaluations started. The bank would not return his money as he had time deposits. His losses were terrible. Oh, the town is San Blas. It was a small fishing village back then. San Blas Mexico | Hotels, Beaches, Nature, Things to Do |
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nope - only a couple of Canadian stocks that trade on the TO exchange. |
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A good starting place to look at potential mix(es) is paulmerriman.com who recommends some equity mixes under his portfolios>mutual funds. |
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International fund, 4.43 percent Total stock fund, 11.68 percent S&P 500 fund, 12.20 percent Also, the international fund has a risk rating of 5, but the two U.S. stock funds have a risk rating of 4. I think I will stick with U.S. stocks. |
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If you want to invest that way chasing higher interest rates in other countries, you might consider that country interest rates are associated with country inflation rates. Higher inflation rate —> Higher interest rates. (If you want to read about it, look up Fisher’s equation on interest.) Why does this matter? If you buy a foreign debt instrument in their local currency such as pesos, you are exposed to currency exchange risk — future currency depreciation against the US dollar. A country with higher inflation will likely have its currency depreciate against the dollar that shows up in exchange rates. (This does not apply if you buy a foreign bond denominated in US dollars.) For instance, if you buy a foreign one-year CD paying 10% interest, you must first convert your dollars into the foreign currency at today’s exchange rate. In one year, you have earned 10% interest from the foreign bank. If you want your money back in US dollars in one year, you must convert your foreign money using the currency exchange rate at that time. If the foreign currency depreciated 15% against the dollar, you have lost money. You earned 10% in interest and lost 15% in the currency exchange. International investing: Inflation rates, interest rates, and currency exchange rates are linked together. In addition to exchange risk, you may be exposed to default risk. Take a look at the government bonds paying higher interest rates at the link below. These high-interest countries generally have higher inflation rates or higher default risk or both. 10-year government bond yield by country 2023 | Statista Moral of the story: There is no such thing as a free lunch of higher interest rates without accepting higher risk. |
If you buy foreign stocks or bonds or other financial interests, you are exposed to CURRENCY fluctuations. .
and unless you BUY at the top of the US DOLLAR strength, and you SELL at the bottom of the US DOLLAR weakness, you are generally going to lose with an 8% currency cost for conversion. . good luck |
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The intl funds end up being riskier tiered companies, so you are diversifying by adding a lower quality set of companies. . |
I suspect that a lot of people own international stocks and/or bonds because they were recommended by a financial advisor. If you are paying an advisor to invest your money, I would recommend that you compare your total return to the S&P 500 index and total bond index least once per year. An honest advisor should do this for you. If the advisor is not getting a higher return than the indexes, then you are paying the advisor for nothing. Fire the advisor and buy some Vanguard index funds.
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Many of the S&P 500 are in fact international companies as they both manufacture and sell in foreign countries so investing in a S&P 500 index fund gives one international exposure.
Years ago after a trip to New Zealand I bought a few shares of a telecommunications company down there, SPKKY. It has been no great shakes but pays a decent dividend so I have kept it. New Zealand income taxes are withheld from the dividends paid to me. I imagine foreign taxes are due and likely withheld on interest paid on bonds as well as stock dividends. |
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Boomer |
How about investing in Japan?
I remember how it was back in 1990 when Japanese business people were making it big. I actually worked for a large Japanese company at that time and experienced it first hand (and first class). Then things changed, as they inevitably do. but now...drum roll... Warren Buffett leads global investors into 'cheap' Japan - Nikkei Asia. |
Their national debt is worse than ours, I believe.
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"A flurry of big spending packages and ballooning social welfare costs for a rapidly ageing population have left Japan with a debt pile 263% the size of its economy - double the ratio for the United States and the highest among major economies." From: Analysis: Japan'''s debt time bomb to complicate BOJ exit path | Reuters. |
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Because the SP500 companies are already there, and you have that in your base portfolio, the intl funds end up being riskier tiered companies, so you are diversifying by adding a lower quality set of companies, no matter what currency the home country is using. |
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Countries Using the US Dollar The list of countries are: Ecuador (which you might have in your name, which is most likely the basis for your point? I have been to Guayaquil and Quito, but in the late 70's) Puerto Rico El Salvador Zimbabwe Guam Virgin Islands British Virgin Islands Panama Bonaire Democratic Republic of Timor-Leste (where?) American Samoa Commonwealth of the Northern Mariana Islands Federated States of Micronesia Republic of Palau Marshall Islands Turks and Caicos There are many other countries which peg/fix their local currency to the US dollar, however those pegs can be broken, and are subject to the whims of the foreign government, and crashing economies. |
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I am not talking about countries that peg/fix their local currency to the US dollar. I am talking about countries that have adopted the US dollar as their official currency. The OP inquired about investing in CDs in foreign countries. I don't invest overseas because I like to keep life simple. However, I have looked into it, specifically in Ecuador, where the official currency is the US dollar. In January of this year, Banco Diners Club of Ecuador was issuing 1-year CDs that returned 7.20%, in US dollars. It's probably higher now. I imagine that the hoops that one has to jump through in order to qualify are complicated. I wonder about Puerto Rico or the Virgin Islands. |
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For what it is worth, Citi Bank has a branch in Quito, Ecuador and Banco Pichincha has a branch in Coral Gables, Florida. |
If someone is considering buying a CD at a foreign bank chasing higher interest rates, be aware that US citizens are required to file one or two special US government forms reporting their foreign bank accounts if their foreign accounts exceed specified thresholds. The penalties for not filing are relatively significant. Also, many US citizens with foreign bank accounts have a tax professional prepare their reporting form(s) and may incur an extra preparer cost.
Here are the forms: FinCEN’s FBAR: Report Foreign Bank and Financial Accounts | FinCEN.gov IRS’s form 8938: About Form 8938, Statement of Specified Foreign Financial Assets | Internal Revenue Service |
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I do wonder what the CD rates are in Puerto Rico and the Virgin Islands. US territories and possessions are not considered "foreign" for FBAR. |
My family has owned Israel bonds since the 1950's when they first became available. I had five in my name as a gift from my grandmother when I was born. I cashed them in somewhere around 2010.
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Right now, the country is in turmoil. The president has dissolved the congress and forced a new general election. |
This is about the Japanese market. Subscribe to read | Financial Times
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