Windfall in rubles: how should we invest it?

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steve321
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Windfall in rubles: how should we invest it?

Post by steve321 » Tue Sep 04, 2018 2:45 am

My Russian wife has recently got a windfall (in rubles) and we're uncertain what to do.

Given that you can get more than 6% in Russian banks, or even better if you invest it in the stock market there you're expected to gain 15% (I got this graph https://interactive.researchaffiliates. ... ms=NOMINAL from the thread on Malaysia) should we leave it in rubles or change it to £? I mean, you get less than 0.5% at the bank in the UK, and 1.5% if you lock your money away for 3 years. So she might regret transferring the money to a currency with a much lower yield. Also if the ruble goes up there wll be extra regret. And isnt't there a trade called carry, according to which higher yielding currencies should go up, so that the ruble should go up in the future?
Success does not bring happiness. In fact, happiness IS success. | 'There are only two tragedies in life: one is not getting what one wants, and the other is getting it.' Oscar Wilde

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Re: Windfall in rubles: how should we invest it?

Post by AlohaJoe » Tue Sep 04, 2018 3:14 am

steve321 wrote:
Tue Sep 04, 2018 2:45 am
Given that you can get more than 6% in Russian banks, or even better if you invest it in the stock market there you're expected to gain 15%
How accurate have Research Affiliates' forecasts on Russia been in the past? Have you checked? How much has the ruble depreciated in the past 5 years?

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steve321
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Re: Windfall in rubles: how should we invest it?

Post by steve321 » Tue Sep 04, 2018 3:18 am

AlohaJoe wrote:
Tue Sep 04, 2018 3:14 am
steve321 wrote:
Tue Sep 04, 2018 2:45 am
Given that you can get more than 6% in Russian banks, or even better if you invest it in the stock market there you're expected to gain 15%
How accurate have Research Affiliates' forecasts on Russia been in the past? Have you checked? How much has the ruble devaluated in the past 5 years?
I woundn't know how to get the data to check. Just got that graph from the Malaysia thread. The ruble has devaluated over the last 5 yrs but has gone up quite a bit (relative to the £) over the last couple of yrs.
Success does not bring happiness. In fact, happiness IS success. | 'There are only two tragedies in life: one is not getting what one wants, and the other is getting it.' Oscar Wilde

jminv
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Re: Windfall in rubles: how should we invest it?

Post by jminv » Tue Sep 04, 2018 3:38 am

steve321 wrote:
Tue Sep 04, 2018 2:45 am
My Russian wife has recently got a windfall (in rubles) and we're uncertain what to do.

Given that you can get more than 6% in Russian banks, or even better if you invest it in the stock market there you're expected to gain 15% (I got this graph https://interactive.researchaffiliates. ... ms=NOMINAL from the thread on Malaysia) should we leave it in rubles or change it to £? I mean, you get less than 0.5% at the bank in the UK, and 1.5% if you lock your money away for 3 years. So she might regret transferring the money to a currency with a much lower yield. Also if the ruble goes up there wll be extra regret. And isnt't there a trade called carry, according to which higher yielding currencies should go up, so that the ruble should go up in the future?
People can regret all sorts of things. She also might equally likely end up regretting leaving her money in Russia, not the reverse. It’s also not an either or situation (uk vs Russia investing). She can invest globally and thereby diversify.

The interest rates she can receive in Russia are due to high central bank rates. Central bank repo rate is high for a number of reasons including keeping inflation under control and minimizing capital flight/avoiding ruble depreciation. She can earn a higher rate for these reasons plus taking on counter party risk and fraud (and exchange rate risk in her situation, 6 percent return could be completely negated by ruble pound movements). Do you know how many banks in recent years have basically failed/been used as personal money laundering groups for Russian businessmen and been taken over by the central bank? If you had a downturn coupled with an oil price collapse, you could see a lot of inflation, ruble collapse, business failures followed by more bank failures followed by more bank nationalization. The government could and probably would protect the saving’s nominal amount to preserve legitimacy but you would see the real amount drop with inflation and ruble devaluation. You could also have capital controls at the same time, which could prevent her from using her money if she needed it.

I would want to earn more in Russia to be exposed to Russian risks, in savings products or the stock market. I don’t think that’s abnormal. If you think the uk is less risky than Russia then it’s a logical step to expect to be paid more for taking on the risk of investing in Russia. Russian stock market returns haven’t been all that great and I would say it’s a very risky proposition with a lot of non-transparent government meddling, fraud, and manipulation. I don’t think historical returns (besides not predicting the future) have lived up to that risk level.

Better just to be exposed to a global index. That way she won’t regret not being exposed to Russia, uk, USA, South Africa, Australia, etc etc. She will get it all and benefit from diversification.

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Re: Windfall in rubles: how should we invest it?

Post by jminv » Tue Sep 04, 2018 6:10 am

steve321 wrote:
Tue Sep 04, 2018 3:18 am
AlohaJoe wrote:
Tue Sep 04, 2018 3:14 am
steve321 wrote:
Tue Sep 04, 2018 2:45 am
Given that you can get more than 6% in Russian banks, or even better if you invest it in the stock market there you're expected to gain 15%
How accurate have Research Affiliates' forecasts on Russia been in the past? Have you checked? How much has the ruble devaluated in the past 5 years?
I woundn't know how to get the data to check. Just got that graph from the Malaysia thread. The ruble has devaluated over the last 5 yrs but has gone up quite a bit (relative to the £) over the last couple of yrs.
Research Associates circa start of 2015 on returns available in any one developed country such as the USA:
“We’ve plotted it – there’s nothing above 5%,” said Chris Brightman, chief investment officer of Research Associates, at a symposium the group hosted in San Francisco on Wednesday. “And there’s really no combination of asset classes that will get us [even] to 5% real returns.”

Research Associates circa start of 2015 on Russia/Emerging Markets:
“Yes, emerging-market equity has expected 7% real returns,” Brightman said. “But recognize, it comes at extraordinarily high volatility of 22%, meaning it can move 50% at times.”

The same goes for Russia. “There may be low prices today, but there’s off-the-chart risk and huge opportunities for volatility in returns.” (ie don't expect our prediction to materialize since the range of possibilities is so wide).

Their developed world prediction to date has not been awe inspiring. That's the only article thing I could find that relates their past performance to actual. It seems that what they normally do is "update" their model and are normally quiet about how their predictions turn out (they also give themselves a long time frame of a decade - in a decade, who is going to be looking back to see how their predictions worked out, particularly since they'll have released a new, 'better model' with new sets of predictions every couple of years in the interim?).

I have to say that "we've plotted it" is also not exactly confidence inspiring. There's no reason to believe that Research Associate's crystal ball is any better than another, although that is what they're trying to convey. Their 'expected returns' models are basic observations with risk (volatility) comes rewards coupled with valuation, growth, and yield measures.

It's also a free tool. If this crystal ball was particularly good at seeing into the future then it would be unavailable to you because they would be using it to run a hedge fund or they would be charging a very large amount for it. Which leads into the next point.

Notice what the tool really is for - selling their services to institutional clients (pension funds and financial advisers) that are worried about achieving a greater than 5% return in order to meet their obligations. This is why the probability of meeting that 5% return is on every allocation type and every country you click on. They have a fun tool to play with that also leads you to believe that maybe these people could help me deliver on my organization's obligations. If this is what they give for free, imagine what the paid service is like. It's a sales tool and that's something to keep in mind.

Nate79
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Re: Windfall in rubles: how should we invest it?

Post by Nate79 » Tue Sep 04, 2018 10:06 am

What is the fastest and cheapest way to get your money out of Russia? That's what I would do. Yesterday.

Dottie57
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Re: Windfall in rubles: how should we invest it?

Post by Dottie57 » Tue Sep 04, 2018 10:12 am

Nate79 wrote:
Tue Sep 04, 2018 10:06 am
What is the fastest and cheapest way to get your money out of Russia? That's what I would do. Yesterday.
+1

bsteiner
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Re: Windfall in rubles: how should we invest it?

Post by bsteiner » Tue Sep 04, 2018 10:31 am

Russia is only about 1% of the world's stock market by market capitalization.

LordB
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Re: Windfall in rubles: how should we invest it?

Post by LordB » Tue Sep 04, 2018 10:32 am

Countries don't pay out higher interest out of the kindness of their hearts.

They are doing it for a reason. Usually that is the risk + inflation of the country is higher than that of countries with lower interest rates.

Generally speaking you want your money to be denominated in whatever currency you will be spending it in so that you don't have currency risk in addition to the other risks of holding a currency assuming you are in a reasonably stable country. Depending on how likely you think a country is to be unstable then I would keep more and more of my money invested and denominated in other large currencies/countries (euro, us dollar, uk pound).

Since you don't live in Russia I would convert it ASAP to British pounds since it is a stable currency and you presumably live there and will continue to live there. Even if I was in Russia I would personally try to have a large amount of my money not in Russia/rubles due it's poor financial history, corruption and generally being politically unstable, but that would be for insurance against the risk Russia collapses rather than for optimizing investments.

Finally you shouldn't be looking at interest rates at banks. Read up on investing in the stock market here. You will earn far more and be much more diversified than leaving it in cash. Cash tends to be worth less as time goes on as the amounts offered in interest rate from banks are usually less than inflation. You should be taking a healthy amount of risk to grow your money... all your money in rubles is probably too much risk as currency fluctuations could loose large portions of it. All your money in pounds at british banks is probably too little as inflation will slowly chip away at the money. A split of money between stocks, bonds and some cash (though many substitute very low risk bonds for cash) is healthy and recommended.

staustin
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Re: Windfall in rubles: how should we invest it?

Post by staustin » Tue Sep 04, 2018 11:05 am

Disregarding the political aspect, Russia is methodically acquiring gold, has an abundance of natural resources and is forecasting a budget surplus this fiscal year. Fundamentally, these things are sound and supportive of a currency you'd want to own. If your Russian wife has any residual family, assets, or intends to live in Russia at some point, it would reasonably make sense to keep those assets denominated and invested in Rubles. If she doesn't, then it would make more sense to convert to the currency where you reside and invest those assets in reasonable way according to your particular situation (conservative if you've 'won the game' aggressive if you're still in accumulation mode).. with brexit pending, not sure i'd label the pound a 'stable currency'..

TravelGeek
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Re: Windfall in rubles: how should we invest it?

Post by TravelGeek » Tue Sep 04, 2018 11:11 am

Seems to be similar to getting a windfall invested in stock XYZ. Would I keep that investment? Probably not, because if I thought XYZ was such a great investment, I would already have a ton of money in that stock (market).

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Re: Windfall in rubles: how should we invest it?

Post by steve321 » Tue Sep 04, 2018 11:14 am

staustin wrote:
Tue Sep 04, 2018 11:05 am
with brexit pending, not sure i'd label the pound a 'stable currency'..
Exactly! That's one of the reasons why I don't know what to do. Suppose I suggest to her that she converts the rubles into pounds; then the pound plummets (was it Soros who said it would 'join' the Euro in the sense of 1£=1E?). I don't think she'd be happy.
Success does not bring happiness. In fact, happiness IS success. | 'There are only two tragedies in life: one is not getting what one wants, and the other is getting it.' Oscar Wilde

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steve321
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Re: Windfall in rubles: how should we invest it?

Post by steve321 » Tue Sep 04, 2018 11:17 am

TravelGeek wrote:
Tue Sep 04, 2018 11:11 am
Seems to be similar to getting a windfall invested in stock XYZ. Would I keep that investment? Probably not, because if I thought XYZ was such a great investment, I would already have a ton of money in that stock (market).
but psychologically it would be different if you sold XYZ and then it doubled in value, from the situation when you never owned it and so never sold it. If you inherit XYZ and you sell it and then miss out, you'll have more regret I think.
Success does not bring happiness. In fact, happiness IS success. | 'There are only two tragedies in life: one is not getting what one wants, and the other is getting it.' Oscar Wilde

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Re: Windfall in rubles: how should we invest it?

Post by Jack FFR1846 » Tue Sep 04, 2018 11:25 am

staustin wrote:
Tue Sep 04, 2018 11:05 am
Disregarding the political aspect, Russia is methodically acquiring gold, has an abundance of natural resources and is forecasting a budget surplus this fiscal year. Fundamentally, these things are sound and supportive of a currency you'd want to own. If your Russian wife has any residual family, assets, or intends to live in Russia at some point, it would reasonably make sense to keep those assets denominated and invested in Rubles. If she doesn't, then it would make more sense to convert to the currency where you reside and invest those assets in reasonable way according to your particular situation (conservative if you've 'won the game' aggressive if you're still in accumulation mode).. with brexit pending, not sure i'd label the pound a 'stable currency'..
Disregarding the political aspects, Venezuela banks pay far more than Russian banks do. Would you have an interest in investing there? I know we can't talk about political aspects, but you absolutely don't want to disregard them.

"Besides that, Mrs. Lincoln....how was the play?"
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staustin
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Re: Windfall in rubles: how should we invest it?

Post by staustin » Tue Sep 04, 2018 11:36 am

The OP's wife is Russian.. If she has an inclination to live in Russia at some point in the future, still has family there, etc. there are fundamentally sound reasons to keep the assets denominated and invested in Rubles. If not, then one would not want to currency speculate. Simply my opinion.

stan1
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Re: Windfall in rubles: how should we invest it?

Post by stan1 » Tue Sep 04, 2018 11:44 am

If the windfall is large I'd expect a lot of scrutiny when you try to convert to any Western currency. I have no advice on how to do it successfully or at a low cost. The experts probably won't come cheap.

MnD
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Re: Windfall in rubles: how should we invest it?

Post by MnD » Tue Sep 04, 2018 1:23 pm

If the windfall had never happened but your presumably diversified household investment portfolio was larger by the amount of this windfall, would you sell that amount and invest it in rubles in Russian banks and/or into the Russian stock market?
If the answer is yes then by all means go Russia with it. If not sell it and buy whatever your investment plan calls for.

Investing in Total World Stock type funds on the equity side solves a lot of these "which country and currency" type dilemmas.

Lynette
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Re: Windfall in rubles: how should we invest it?

Post by Lynette » Tue Sep 04, 2018 1:47 pm

Dottie57 wrote:
Tue Sep 04, 2018 10:12 am
Nate79 wrote:
Tue Sep 04, 2018 10:06 am
What is the fastest and cheapest way to get your money out of Russia? That's what I would do. Yesterday.
+1
Can you get it out of Russia? My experience is a bit dated but I was in Russia about 5 years ago and had my debit card skimmed while in St. Petersburg. A few days later $1,000 per day for three days was taken from my bank account at an ATM in Poland. I think my US bank told me that this was common practice as the rouble could not be traded outside of Russia.

This may have changed but I understood from our Russian guides that Russia did not have a well established banking system due to its communist legacy.

I lived in South Africa during the Apartheid era and there was flight of capital from South Africa. The government imposed restrictions on currency withdrawal. Even today the South African Reserve Bank limits movement of capital - many restrictions.

TravelGeek
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Re: Windfall in rubles: how should we invest it?

Post by TravelGeek » Tue Sep 04, 2018 2:12 pm

steve321 wrote:
Tue Sep 04, 2018 11:17 am
TravelGeek wrote:
Tue Sep 04, 2018 11:11 am
Seems to be similar to getting a windfall invested in stock XYZ. Would I keep that investment? Probably not, because if I thought XYZ was such a great investment, I would already have a ton of money in that stock (market).
but psychologically it would be different if you sold XYZ and then it doubled in value, from the situation when you never owned it and so never sold it. If you inherit XYZ and you sell it and then miss out, you'll have more regret I think.
I have never inherited anything, but I suspect I eventually will eventually. My plan is to not develop any emotional attachment to the choices made by the original owner. If they invested, for whatever reason, in GE shares, I will liquidate those shares and invest the money in accordance with my overall investment plan. GE shares play no role in my plan now and wouldn’t just because someone gave me shares.

This thread might also be of interest and help:

viewtopic.php?f=1&t=257894

BigMoneyNoWhammies
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Re: Windfall in rubles: how should we invest it?

Post by BigMoneyNoWhammies » Tue Sep 04, 2018 3:34 pm

steve321 wrote:
Tue Sep 04, 2018 2:45 am
My Russian wife has recently got a windfall (in rubles) and we're uncertain what to do.

Given that you can get more than 6% in Russian banks, or even better if you invest it in the stock market there you're expected to gain 15% (I got this graph https://interactive.researchaffiliates. ... ms=NOMINAL from the thread on Malaysia) should we leave it in rubles or change it to £? I mean, you get less than 0.5% at the bank in the UK, and 1.5% if you lock your money away for 3 years. So she might regret transferring the money to a currency with a much lower yield. Also if the ruble goes up there wll be extra regret. And isnt't there a trade called carry, according to which higher yielding currencies should go up, so that the ruble should go up in the future?
Setting aside the interest rate question, as someone who works for the government and deals with trade/international finance issues daily, you couldn't pay me enough money to keep a windfall at the majority of Russian financial institutions given what we know of their regulatory regime. Their financial regulatory regime is certainly better than it was during the Yeltsin years, but cleaning up the system has been entirely at the whim/behest of Putin and not because of any sort of adherence to the rule of law or accounting best practices. Too many institutions there are fronts for the movement of large amounts of illicit funds, owned by the mob or oligarchs beholden to Putin, or have cooked books papering over their actual financial soundness. I'm assuming you aren't domiciled in Russia. If it was me, I'd take the money and get it out of Russia asap.

ImmigrantSaver
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Re: Windfall in rubles: how should we invest it?

Post by ImmigrantSaver » Tue Sep 04, 2018 4:00 pm

Nate79 wrote:
Tue Sep 04, 2018 10:06 am
What is the fastest and cheapest way to get your money out of Russia? That's what I would do. Yesterday.
+1000

If she is adamant about keeping it in the country, then maybe buy a real estate property with it.

FWIW I am a Russian living in US.

TN_Boy
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Re: Windfall in rubles: how should we invest it?

Post by TN_Boy » Tue Sep 04, 2018 4:00 pm

steve321 wrote:
Tue Sep 04, 2018 2:45 am
My Russian wife has recently got a windfall (in rubles) and we're uncertain what to do.

Given that you can get more than 6% in Russian banks, or even better if you invest it in the stock market there you're expected to gain 15% (I got this graph https://interactive.researchaffiliates. ... ms=NOMINAL from the thread on Malaysia) should we leave it in rubles or change it to £? I mean, you get less than 0.5% at the bank in the UK, and 1.5% if you lock your money away for 3 years. So she might regret transferring the money to a currency with a much lower yield. Also if the ruble goes up there wll be extra regret. And isnt't there a trade called carry, according to which higher yielding currencies should go up, so that the ruble should go up in the future?
Assuming that you have no future plans to live in Russia, or spend a lot of time and money there (and well, maybe even if you do have such future plans) what you should do it get that money into a 1st world currency, presumably the pound, since you live in the UK, as fast as you possibly can.

Interest rates are telling you something. If you can get 1% from a bank deposit in say the US or UK, and you can get 6% from a Russian bank, that is telling you the risk of something bad happening to that money is much higher in the Russian bank.

I know people that had money in emerging market country currencies because "they could get such good interest rates." It ended badly.

Putting that money into the Russian stock market is quite risky also -- a relatively un-diversified bet on a piece of the emerging market countries. I have a chunk of my international equity allocation in emerging markets. I would not be tempted into bets on Russia.

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Re: Windfall in rubles: how should we invest it?

Post by Valuethinker » Wed Sep 05, 2018 10:37 am

steve321 wrote:
Tue Sep 04, 2018 2:45 am
My Russian wife has recently got a windfall (in rubles) and we're uncertain what to do.

Given that you can get more than 6% in Russian banks, or even better if you invest it in the stock market there you're expected to gain 15% (I got this graph https://interactive.researchaffiliates. ... ms=NOMINAL from the thread on Malaysia) should we leave it in rubles or change it to £? I mean, you get less than 0.5% at the bank in the UK, and 1.5% if you lock your money away for 3 years. So she might regret transferring the money to a currency with a much lower yield. Also if the ruble goes up there wll be extra regret. And isnt't there a trade called carry, according to which higher yielding currencies should go up, so that the ruble should go up in the future?
1. she should hold rubles subject to her need to spend rubles in say the next 5 years (travel, gifts etc.)

2. if she wishes to maintain an interest in Russia, owning a property is perhaps the best long term hedge. More stable than the stock market and perhaps legally better protected? (not sure how easy it is to enforce title to land in Russia)

3. Russian equities are highly volatile, the index is quite concentrated around natural resources companies

4. if the money is brought into the UK then the issues are:

- tax if she is registered non domicile for HMRC purposes (you may need professional advice on this). How will UK authorities view this remittance for tax purposes

- if you invest it in a global equity fund, currency unhedged, then this is the best default position - because you then have the currency exposure of the global equity market

- if you invest it in UK bank accounts or currency hedged funds, then you are taking a bet on GBP - in the leadup to Brexit that's accepting quite a bit of risk (although it could go either way of course, a better deal than the market expects will push the GBP up)

To the extent one is say 30% bonds/ 70% equities and one remits £100k, putting 30k into a UK bond fund, and 70k into a global equity fund, it's not going to be too harmful to get the exchange rate wrong.

If it's too painful to get roubles exchanged at the "wrong" rate, then do it in 2 or 3 parts. One part now. One part in 6 months. One part in 12 months. You can never call exchange rates - never get them right.

If she is intending to remain resident in the UK long term then it is important to make full use of annual ISA allowances for both spouses (there are also funds related to children and I am not familiar with those). Personal pensions should be contributed to up to employer match, then ISAs, then any additional personal pension contribution room (this is not entirely clear on the latter, there are arguments both ways). Repaying any high interest consumer debt is also a priority (student loans it is more complex - I suggest reading Moneysavingexpert.com -- Martin Lewis, the founder, is quite passionate about this).

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