Hello from Brazil

[Leonardo]

Hello everyone.

My name is Leonardo and I am 22 years old. I live in Salvador, Brazil. I just got my law degree and I'm studying VERY hard to be a kind of "public lawyer" which will give me $8000 monthly or +$100.000 a year.

I have a girlfriend and we've been together for almost 6 years. She is 24. We really love each other and I'm sure that she is the woman of my life. She works in a bank and earns $1500 monthy or $22.000 a year. She is in this job for less than 6 months and will be promoted very soon, where she will then earn $2000 monthly or $29000 a year.

We are just starting to raise some money, and have only $3000 in a fund, which gives me 18% a year.

I also have a car valued in $15000. I expect to receive from my parents an apartment worth $215.000. I expect to sell that property and invest in real estate or in that same fund that gives me 18% a year.

I expect to boost significantly my income by 2007 when I expect to pass in a competition made by the government which grants everyone that pass the license to work as a notary. I hope that it will give me $300.000 a year.

We don't have any children and expect to have only when we're in our 30's (2015).

My goal is to ER at 40. I think that with $1 million we can live confortably (the interest here is Brazil is very high and will probably continue like that for the next 10 years).

Me and my girlfriend have a budget and we spend something like $1.500 monthly. We expect that our expenses will grow sharply to something like $2.500. So I think that I can retire nicely earning $5.000 a month, or $60k annualy. With a $1 million I should earn $120.000 a year, which I think cover any emergencies.

I think that my target goal is possible to be reached, even more if I can work as a notary in the future. I would love to hear some input from everyone. The only thing that worries me is my girldfriend that has some compulsion towards shopping, but we're already working on that.

I've already learned a lot in this forum and expect to learn even more in the following years. I expect to be a part of this great community for a long, long time.

I'm ready to help if you guys need any advice about living in Brazil or, even better, investing here (great interest rates!).

 

[Nords]

Welcome to the board, Leonardo.

I guess FIRECalc's U.S. numbers won't be much help. What do you use for your inflation assumption?

How do you handle health insurance?

 

[Leonardo]

Hello Nord.

I tried to use firecalc but it didn't help much. Inflation has always been a problem here in Brazil. It has been recently (1994) controlled, and in 2005 the inflation rate was only 1,1%. Next year the government plans an inflation of 5%, and that's the number I will use in the next years.

I don't worry too much about inflation, however, because both my salary and my girlfriend's should have gains way above inflation.

Also, the fund that I am investing is actually some kind of Treasure Direct, that automatically hedges the investment against inflation. The after-tax and after-inflation interest rate is something like 12-13% a year. I may try to purchase some stocks in the future to raise my gains, but the interest that the government is paying is so damn high that it isn't worth the additional risk.

The health insurance is currently handled by the bank which my girlfriend work. We don't pay anything. However, health insurance is not expensive here in Brazil, something like $200 for a 40 year old male. The price is controlled by the government, so I really doubt that it will rise too much above inflation in the next decades. I heard that the health insurance has raised significantly there in the U.S.

 

[califdreamer]

Congratulations Leonardo on a great start. With your high salary and the opportunity to invest with those kinds of returns you'll have a good shot at ER by age 40.

I'm curious, are those bonds backed by the government? Is there a significant risk of default? How can they pay such high interest rates?

 

[jefipius]

Bem-vindo, Leonardo!

 

[obryanjf]

Oi Leonardo

My wife is brazilian. I've been trying to convince her to move back(floripa) for a couple of years. My rough budget was 25,000 US to 30,000 US. Pretty close to yours, although I did nOt have a good basis for determining that.

Good job on the plan.

 

[dougdo]

Makes me wonder if there aren't some amazing deals right now in the developing world for deposits.

The banks in the developing world give a huge premium for deposits in the local currency over deposits in US$, supposedly because of the instability of the local currency and the sliding value. But in the last few years many of these currencies have actually gone up -- so you'd get currency appreciation and a helluva lot better interest rate.

Just spent 2 months in Mexico for example where banks were offering interest rates somewhere around 10%...that's despite the fact that the currency has risen against the US$ in the last few years.

 

[justin]

The banks in the developing world give a huge premium for deposits in the local currency over deposits in US$, supposedly because of the instability of the local currency and the sliding value. But in the last few years many of these currencies have actually gone up -- so you'd get currency appreciation and a helluva lot better interest rate.

I was surprised to find the conversion from USD to Brazilian units was 1 to 4 a few years ago, and it is closer to 1 to 2 now. Basically, the USD has lost half its purchasing power in Brazil.

 

[obryanjf]

I was surprised to find the conversion from USD to Brazilian units was 1 to 4 a few years ago, and it is closer to 1 to 2 now. Basically, the USD has lost half its purchasing power in Brazil.

And ~7 years ago it was 1 to 1. At times a little volitle!

 

[Leonardo]

The bonds are indeed backed by the government. The risk of default is minimal, as I can't see Brazil in another moratory for the next 10 or 20 years. They pay such high interest rates because of the need to keep inflation low and to attract investments.

It's sad because we pay 8% of our GDP every year just in interest. A little too high for me.

obryanjf: Florianópolis surely is a lovely place to live. I intend to retire there, although my girlfriend is jealous of the very, very beautiful women that live in that city .
The numbers that I'm saying is in Reais, not dollars. So, my actual budget is something like U$7.700 a year, but as I said it will soon change to something like U$13.000. We can live with so little money because I don't have to pay for the gas, for the phone and for the rent.

The currency today is 1 to 2.35. It was 3 to 1 a year ago and 1 to 1 eight years ago. Surely very volatile!

I'm very happy that my initial plan didn't sound stupid or something like that. I hope that I can ER as soon as possible and really use my time in more important things. I'm just worried about my girlfriend, that still don't think that's possible, and so is always wanting to live above our means. I guess that some people in this forum has passed through similar situations. I'm always trying to show her the power of compounding and other financial subjects, but as I start to talk about millions she just laugh and say that I'm too greedy.

As a side note, we have 0 debt. No mortages (long mortages are unusual in Brazil), no CC debt, no car payments, no loan, nothing.

 

[Jarhead*]

Oi Leonardo

My wife is brazilian.  I've been trying to convince her to move back(floripa) for a couple of years. 

Careful, that can be darned expensive.

Have you tried marriage counseling. Might be worth a shot.

Jarhead, who agrees with ReWahoo, that Texas is the best college football team in the country.

 

[MooreBonds]

I was curious if you are able to purchase Brazil's Inflation-indexed bonds on-line?

Yes, I know there's a whole mess of paperwork with the whole "interest in a foreign account" box on Schedule B ....but I was just curious if there are ways for Americans to purchase Brazil's I-bonds over the net?

--Peter

 

[obryanjf]

Careful, that can be darned expensive.

Have you tried marriage counseling. Might be worth a shot.

Sorry! I should have said move down together.. with our 3 children to learn the language, in laws etc..

 

[Leonardo]

Yes, I buy the bonds online. I have no idea how americans could do that, as it is necessary to use the service of a "Custody Agent", and most agents require you to have an account in a brazilian bank. You can search those agents and see if it is possible for you to easily invest here.

If you're curious, you can check the site http://www.tesouro.fazenda.gov.br/tesouro_direto/ and you can check the interest rates yourself. Some bonds exceed 20% interest a year.

Sorry if I can't help much. I guess that you can find that kind of information more easily than me. I don't know if it is possible to buy that specific kind of bond, because it was created by government for the local population to buy it themselves, and not through a bank charging them 11% a year of fees as we can still see today .

 

[mb]

Hi Leonardo,

Thanks for the post.  Do I have this right?

fund that gives me 18% a year

2005 the inflation rate was only 1,1%. Next year the government plans an inflation of 5%

kind of Treasure Direct, that automatically hedges the investment against inflation

A bond with a real return of ~15% with little inflation or default risk?  I guess there is exchange rate risk for non-Brazilians but it sounds like that hasn't been a problem for the last couple of years?

If this is for real I think you should look at setting up a company to allow non-Brazilians to invest in this!  You could ER next year!

But something in the back of my mind keeps screaming "return is proportional to risk" so there must be a catch.

I suppose that this is reinforced by what the typical American hears about Latin American economies.

Anyway good look with your goals.  It sounds like you are doing a good job of planning but I would suggest looking at other investments besides real estate and the government bonds just in case something unforseen happens.

MB

 

[Leonardo]

Hi mb.

We should always be careful in our investments and we need to know exactly the risk of it. You are right that return will be always proportional to risk.

The real problem is that Brazil doesn't have a lot of credibility in the international market. This is a result of our moratory in 1987 and our credibility crisis in 1998. So, according to JP Morgan and Moody's we have lower credibility than our neighbor Argentina, who has just declared moratory recently and had it's economy shrink by 15%.

My opinion, therefore, is that there is still today some unconfidence about our possibility to honor our debt. What I am saying is that that risk is largely imaginary, based mainly in the crisis of 1998 which we are undoubtedly fully recovered from. I guess that neighbors like Argentina (Moratory recently), Venezuela (Crazy "President") and Bolivia (Civil unrest) helps to bring the image that the Latin America is a place that you can't trust for long, just as you said.

Another point is that 15% return is not much by the majority of local investors. We are so accustomed to large interest that a good rate of return is something like 3% or 4% a month. Banks and credit cards charge 10% a month from it's costumers, and our stocks just raised 27,5% a year. With rates like that, 15%/year is not a big return at all.

The only problem for non-Brazilians to invest here is indeed the exchange rate risk. As I said in a previous post, our currency is not controlled at all by the government, so it is normal to see changes of 30% in a year, like we just had last year. The exchange rate is also completely unpredictable. When the Real was 1 to 3, it was expected in the end of the next year a rate of 1 to 3,90. EVERYONE was saying that. As a result, the rate dropped to 1 to 2,15.

Thank you for your tips. I will surely in the future study more about portfolios and different kinds of investments. I guess that diversification is the key to reduce the risk and keep the return high. I also read about 10 books about the stock market, but I know it is far from enough for me to be able to invest there.

My primary objective, however, is to study law very very hard, as I need to have a good job in order to be able to sock away as much as possible, which is much more important than having the right investment with little income.

Or, even better, become a notary and then a millionaire in 3 years .

 

[obryanjf]

2 Additional thoughts.

My wife has previousily mentioned that to have a bank acct you need SPF ?? (similar to Social Security number). The feds control that and to get one you must be legite as long term resident or citizen and all up to snuff with voting, taxes, etc.

My wife also mentioned that a decade or so ago, perhaps 1987, the govt (old one), confiscated, stole, took some percentage of certain kinds of accts, outside of normal taxes. Hard for me to calculate that risk.

job

 

[Leonardo]

My wife has previousily mentioned that to have a bank acct you need SPF ?? (similar to Social Security number). The feds control that and to get one you must be legite as long term resident or citizen and all up to snuff with voting, taxes, etc.

My wife also mentioned that a decade or so ago, perhaps 1987, the govt (old one), confiscated, stole, took some percentage of certain kinds of accts, outside of normal taxes. Hard for me to calculate that risk.

job

To have a bank account you need a CPF (Cadastro de Pessoas Físicas), created to track every citzen individually whenever it is necessary to pay any kind of taxes. You can have a CPF despite not being Brazilian and living out of Brazil. It is necessary to contact Brazil's embassy in your country, fill a form, pay some taxes, etc.

All bank accounts were indeed confiscated in 1990 by the president Fernando Collor de Mello in his first 15 days of government. Because of that (and also because of a corruption scandal) it was declared his impeachment (the first in the world) in 1992.

I really can't think of something similar to happen in Brazil for a long time. That happened 16 years ago and we surely learned from that mistakes. The central bank follow a largely orthodox view of the economy for 12 years. Liberal or conservative, everyone agrees that we need to keep inflation low and to show to the world that we're a serious country.

 

[mb]

Thanks for your comments Leonardo.

It's always fun and valuable to hear about what's going on in a country from the source.

By the way I recently read a short article (don't remember where) about the "BRIC" countries (Brazil, Russia, India, China).

The basic point was that they are all large, populous countries with the potential for rapid growth that will challenge the US, Europe and Japan economically.

MB