I get asked this all the time when I say, what are you looking for in terms of investment? The reply I usually get it, “I am looking for a high return with no risk” (I guess most mean with the exception of default risk). I reply, there must be some risk if you are wanting 10%. well, I finally have the answer for the 100s of times I have been asked this question, put it in an Argentinean bank account and get 21%, easy! No, but seriously, with the risk-free rate being the treasury’s 10 years doing 0.92% and interest rates in developed countries being dismal at best what can you do to get 5% risk-free (except default risk). Below I have detailed a few ways to make 5% with minimal risk to your cash or investment.
Personal favorite Banks to get high interest
Seriously with an inflation rate in Argentina, of 27% + and a collapse of political power (from its rise in the 60s), the only other thing riskier would be to invest in Venezuelan bonds (which Goldman Sach has heavily calculated that they only need it to pay for 5 years before default).
There are a number of bank account across the world that you can get a high-interest rate, however, what is the point of getting 15% in Ukraine if inflation is at 40+%? I will list a few of my favorite banks where you can get 5% in USD and in the local currency that is deemed viable and why (that can be used as an asset as its self).
Let’s go on to USD banks, with low-interest rates (and getting lower of March 2020) doesn’t seem your cup of tea getting 1.5% in your savings account and let’s face it, this is actually high in the western world. I have invested in a few bank accounts in the emerging markets to spread my investments out and see what the bank accounts are like. This helps me explain it easier to my clients also (southeast Asia).
Disclaimer this is all from my personal experience and through speaking with locals in those countries.
Armenia
Armenia, this place is a hidden gem as long as your not from Turkey or Azerbaijan (a lot of history between its two borders from the Ottoman times) you will be fine here. The place is deemed little Swiss, for its picturesque landscape. It held peaceful demonstrations in 2018, but this is not why I like it, as the former Soviet, it has both close ties with Russia and is increasing its ties with China. Looking to become a European state, I have been on the lookout for a residency program here like Georgia, but at present, it is quite hard. On this note, they have been looking to change this to get more residents and utilise the citizenship money. Armenia’s bank is one of the biggest and offers 9% in Dram. The U.S rate is less at 4% but still a lot better than what you would get in the U.S. This is one of my top spots in the world for high-interest rate banks. As I believe and said so in a few articles of mine that I am a big fan of this place for the future, as it opened up new ties with China and looking to become in the E.U.
In the region, there are also competitive rates with Azerbaijan and Georgia having 10%+ in their local currency but have seen falls against USD, personally I believe Georgia is in a very similar situation to Armenia, where it’s opening up its citizenship and could see a dramatic increase life in the next few years (although it is not too friendly with Russia).
Cambodia
Here is a place a am a big fan of, I am currently living next door to Cambodia and toying with moving to the country as a base just to see the best investment deals from the ground. Being based in Bangkok currently means that I can have the best of both worlds, what lets Cambodia down is it’s lack of infrastructure however, as the years go on, it will become better. The question, you have in mind, what’s so good about Cambodia?
If anyone reads the history of geographical economics on open countries and how successful they have been, Singapore & Dubai. Cambodia is still corrupt, however, it has a lot going for it and unfortunately, as of writing would say the peak time to invest in property in the country will have gone. I first looked at buying here in 2016, when little high rises existed, in Phenom Phen but now it’s a different story and although, not a fan of buying flashy sales condos, the one I looked at then has seen its price rise which is the start of a good investment. If the property opportunity has gone here is what you can do next.
To bank here, you will need to get a visa here, but luckily, visas are very simple and if you are a retiree you can get a yearly one for less than $300 (US) a year. They offer 4.75% which seems to be the going rate when I looked at the banks. I have seen and had many clients that say they get 6-8% with the introduction rates in banks in USD. This is not bad when considering in the western countries, rates are around at most 1.5%.
Personally, I see it as Thailand 30 years ago and see it following in the same footsteps. We will see a lot of Chinese investment into Cambodia, and expat migration due to being cheap and free (especially from Thailand with the strong THB and hard immigration laws). This makes Cambodia more attractive to work and live than Thailand
Mongolia
I have had no experience with this and only know a few teachers that lived there when I was in China. They were getting 6% in USD and in the local currency (tugriks) getting 14%. I don’t know too much about the banks here so I will not go on with incorrect information.
Summary
The rest, okay, I know there are banks in Uzbekistan and Turkey that give high rates, but don’t believe in the currency and the banks in these places as they have seen too high inflation and instability. Although Turkey has had a successful Citizenship program and if economists are right, it could be the new superpower by the end of the century due to its size geographical location.
Uzbekistan is opening up and seen heavy investment from China, it is one to keep an eye on with the new president. The bonds went through the roof when opened two years ago. Private companies are opening up now also. It still has a very low GDP and the president is opening up to tourism and opening up kind of. It does have a high level of natural resources and should be a wealthy country.
Structured Products
Okay, so I am not living in these countries, and don’t want to fly to get a high-interest rate. Is there another way?
Yes, structured products are normally offered by banks and linked to shares and indexes or shares.
What is a structured product
A feature of some structured products is a principal guarantee function (often referred to as capital protected), which offers protection of principal if held to maturity. However, the nature of the guarantee has to be clearly understood as it almost certainly will not be analogous. The following illustration will help to properly qualify the nature of the guarantee.
Example: Let us consider an example of how this might work and the risk/reward to the investor.
An investor pays $1,000 for an equity-linked note or structured product, perhaps on the advice of an IFA, which is structured or financially engineered by and issued by an investment bank and marketed by a consumer-facing financial services firm.
The product provides the investor with the following:
A guarantee that the £1,000 will be repaid after five years. This can be called the principal guarantee or capital protection. The investor will benefit from one-half of the returns from the S&P 500 Index during the five-year period. This can be called the equity index linkage.
The engineering could be relatively simple and work as follows. Part of the purchase value is used to buy a zero-coupon bond or strip with a redemption value of $1,000 in five years. If the zero-coupon bond is priced to yield 5% to maturity, the amount required will be $783.53 and this can be straightforwardly calculated as $1,000/(1.05^5).
With the net balance of the purchase amount – and the fees earned can be quite considerable for these products – the bank’s structuring team could purchase options, warrants or even agree on an equity swap with a counterparty, in order to deliver the 50% returns on the Index which will deliver the required equity index linkage.
These have several features but do, offer a “fixed rate”.
So why isn’t everybody in them?
Well it not that simple, they are normally offered by big banks and they are actually made up of derivatives, and 50% index-linked. So when the boffins at the big banks, are bullish (the market will rise) they would offer a 6% coupon a year and when they think the market will go down they offer a 3%. Yes, they do have a part in the portfolio, but only that a PART, not all your money as they are at default risk. They have looked at these getting to 8% if you would have just put it in an ETF, it would have got you 25%. I’m not a fan of how everyone sells these, but do think they are useful as an alternative to equities to reduce the volatility and a higher rate than the bank.
Some of the risks are
- Credit risk – structured products are unsecured debt from investment banks and, as the case of Lehman Brothers shows, the possibility exists of a complete loss of capital either permanently or until the administration process is completed, which may take years to work out.
- Lack of liquidity – structured products rarely traded after issuance and someone who wants or needs to sell a structured product before maturity should expect to sell it at a significant discount.
- No daily pricing – structured products are priced on a matrix, not at net asset value. Matrix pricing is essentially a best-guess approach, and the lack of pricing transparency can make it very hard for present valuation purposes.
- Highly complex – the complexity of the return calculations means few truly understand how the structured product will perform relative to simply owning the underlying asset.
In conclusion, only have this is as part of your portfolio, and if an IFA is putting you in these it as they offer 4% upfront coms on top of the entrance fee. So be careful and make sure this is the right product for you.
If you would want to aim to achieve 5% with these or want to know more about opening a bank account to get these in the countries inquire below or email me at info@investmentsforexpats.com
