Hedging the Brazilian Real (or an alternative?)

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tech123
Posts: 13
Joined: Wed May 16, 2012 11:30 am

Hedging the Brazilian Real (or an alternative?)

Post by tech123 » Fri Aug 17, 2018 7:26 pm

First off, the situation: My girlfriend has both US and Brazilian citizenship. She owns an apartment there. In addition to partially supporting her mother, she also has to pay condo fees and property taxes. At the moment, she has a sum of money in R$ to cover these expenses for the foreseeable future and would like to invest this sum so it's earns more of the long run. To this end, I looked into robo-advisors in Brazil and in asking about them here viewtopic.php?f=1&t=256382&p=4066736#p4066736 came across the problem of PFIC tax rules and the fact that Brazil doesn't have a tax treaty with the U.S. So, it seems to me that investing that money in Brazil wouldn't be a good idea because of the very high taxes she would have to pay.

So, the other option would be to invest that money here in the U.S. However, because her expenses are in R$, I would like to mitigate the currency risk of the R$ rising in value against USD and was wondering if anyone has an idea on how to do this.

Also, if there are any other suggestions on how to handle this situation, namely invest the money while at the same time mitigating the currency risk, I'm all ears.

Thanks

tech123
Posts: 13
Joined: Wed May 16, 2012 11:30 am

Re: Hedging the Brazilian Real (or an alternative?)

Post by tech123 » Fri Aug 17, 2018 7:32 pm

Actually, I see now that the tax treaty isn't an issue. The high tax and onerous reporting because of PFIC is still an issue.

Coato
Posts: 119
Joined: Wed Oct 21, 2015 4:34 pm

Re: Hedging the Brazilian Real (or an alternative?)

Post by Coato » Fri Aug 17, 2018 7:41 pm

Also, she would get taxed in Brazil and the US on a US investment.

tech123
Posts: 13
Joined: Wed May 16, 2012 11:30 am

Re: Hedging the Brazilian Real (or an alternative?)

Post by tech123 » Fri Aug 17, 2018 7:53 pm

Coato wrote:
Fri Aug 17, 2018 7:41 pm
Also, she would get taxed in Brazil and the US on a US investment.
Is that true? This http://taxsummaries.pwc.com/ID/Brazil-I ... x-treaties says:

"In the case of the United States, United Kingdom, and Germany, the Brazilian authorities have already officially recognised the reciprocity of tax treatment, which permits the offsetting of the tax paid in those countries against the tax due in Brazil, on the same earnings."

ronno2018
Posts: 27
Joined: Sat Apr 14, 2018 9:31 am

Re: Hedging the Brazilian Real (or an alternative?)

Post by ronno2018 » Fri Aug 17, 2018 8:03 pm

Not enough info. How much R$ does she have in Brazil? What does she earn in the US? Can she invest in the US in a 401K? Does she send her Mom US$ monthly for her Mom's or other family members Brazilian living costs?

I think she needs to invest in the US and just leave her funds sitting in a savings account in Brazil.

Or buy another apartment in Brazil and rent it out, or invest in a family owned business in Brazil like a lanchonete or something similar.

I just wish the best to Brazil and hope they surmount the current political and economic difficulties. A lovely country and culture.

tech123
Posts: 13
Joined: Wed May 16, 2012 11:30 am

Re: Hedging the Brazilian Real (or an alternative?)

Post by tech123 » Fri Aug 17, 2018 8:22 pm

ronno2018 wrote:
Fri Aug 17, 2018 8:03 pm
Not enough info. How much R$ does she have in Brazil? What does she earn in the US? Can she invest in the US in a 401K? Does she send her Mom US$ monthly for her Mom's or other family members Brazilian living costs?

I think she needs to invest in the US and just leave her funds sitting in a savings account in Brazil.

Or buy another apartment in Brazil and rent it out, or invest in a family owned business in Brazil like a lanchonete or something similar.

I just wish the best to Brazil and hope they surmount the current political and economic difficulties. A lovely country and culture.
She has about R$100K. She earns about $60K in the U.S. She is a contractor and doesn't have a 401K. She doesn't regularly send money to Brazil. Rather she is hoping to pay those costs from the R$100K in savings there.

What is the reason you think she should leave them in a savings account there?

ronno2018
Posts: 27
Joined: Sat Apr 14, 2018 9:31 am

Re: Hedging the Brazilian Real (or an alternative?)

Post by ronno2018 » Fri Aug 17, 2018 8:47 pm

I really have no idea how to invest in Brazil and I just think you are in general better off leaving those funds there and focusing on investing in the US and using something like Transferwise to move funds as needed to Brazil. Issues in Brazil are inflation and corruption, as well as political instability. If you are there and have no options feel free to invest in Brazil, and returns can be great for awhile, but eventually there is a crisis. That is usually not the case in the US, and you have a range of options for global investing here in the US.

I suppose the issue is repatriating her US investments back to Brazil if she desires to move back or is forced to, but most Brazilians I meet in the US have no desire to return to Brazil permanently.

Coato
Posts: 119
Joined: Wed Oct 21, 2015 4:34 pm

Re: Hedging the Brazilian Real (or an alternative?)

Post by Coato » Fri Aug 17, 2018 9:10 pm

Regarding taxes. I worked there as of 2017 and we had to include all our US stuff and were taxed on it. I had a colleague with a lot of rentals leave because of it. Now it could just be that the agency our company/school hired to do it was wrong, but it definitely happened.

not4me
Posts: 430
Joined: Thu May 25, 2017 3:08 pm

Re: Hedging the Brazilian Real (or an alternative?)

Post by not4me » Sat Aug 18, 2018 1:22 pm

tech123 wrote:
Fri Aug 17, 2018 7:26 pm

So, the other option would be to invest that money here in the U.S. However, because her expenses are in R$, I would like to mitigate the currency risk of the R$ rising in value against USD and was wondering if anyone has an idea on how to do this.

Also, if there are any other suggestions on how to handle this situation, namely invest the money while at the same time mitigating the currency risk, I'm all ears.

Thanks
I've never faced this, but think I'd likely do as others have suggested & not try to do anything in Brazil. A couple of other thoughts I had are not well thought out & so needs much more investigation. 1st, I know there are sites such as forex.com that some use to trade currencies. If they cover the real, you could look at a forward contract. 2nd, you could short an etf such as BZF or maybe a brazilian bank's adr...I say you "could", but I imagine that isn't that easy.

Both carry excessive risk (& of course no warranty expressed or implied!!). Before I ever took a look at them, I'd quantify how big a problem there is right now. These "cures" are likely worse than the disease.

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