New to investing (Chile)

For investors outside the US. Personal investments, personal finance, investing news and theory.
Sister forums: Canada, Spain (en español)
---------------
Post Reply
Topic Author
andyesm
Posts: 4
Joined: Wed Sep 09, 2020 6:39 pm

New to investing (Chile)

Post by andyesm »

Hello everyone,

I would appreciate a lot if you guys can help me and give me some guidelines with my investing’s. First some preliminary info to have in mind:
  • Country of Residence: Chile (Latin America)
    International Lifestyle: I don't plan on leaving my country anytime soon but the chance on moving to Europe exists since I have Italian citizenship.
    Emergency funds: Three months.
    Debt: Zero. No debts atm.
    Age: 30
    Investements: Haven’t done any investments so far, but I want to start doing it before it’s too late.
I have been reading the wiki and other sources every now and then, trying to figure out where to invest but I haven’t been able to decide yet. Lately, I was thinking in going for the CSPX but reading the forums I saw that maybe going global would be better since it is like 55% USA anyways and I cut down on taxes/expenses.

I have in mind investing around 3000 USD annually (probably once a year or as few as possible to minimize costs and stuff with the broker). Needless to say, this is long term or at least that’s the idea.

What would you guys recommend?
TedSwippet
Posts: 3100
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: New to investing (Chile)

Post by TedSwippet »

Welcome.
andyesm wrote: Fri Sep 11, 2020 6:47 pm I have been reading the wiki and other sources every now and then, trying to figure out where to invest but I haven’t been able to decide yet. Lately, I was thinking in going for the CSPX but reading the forums I saw that maybe going global would be better since it is like 55% USA anyways and I cut down on taxes/expenses.
You can find a selection of likely suitable all-world stock ETFs listed in the wiki. For example, here:

Building a non-US Boglehead portfolio (Accumulating funds) - Bogleheads
Building a non-US Boglehead portfolio (Distributing funds) - Bogleheads

Perhaps SWRD or VWRD would suit? Traded in USD on the London Stock Exchange, so probably relatively easily accessible for you. Trading annually to cut down costs should not affect your long term (decades) results too much. You will want to investigate Chilean tax laws, to see if there is any gain for you in using accumulation ETFs rather than distributing ones. There can be for some countries, but not for all.

Chile has no US tax treaties -- the country negotiated one with the US waaaay back in 2010, but through truly exceptional heel-dragging, the US senate has still not yet got around to ratifying it over a decade later. So you should entirely avoid holding any US domiciled ETFs. From your initial choice, CSPX, it seems like you might already have picked up on the need to avoid US domiciled funds and ETFs. Just checking, then.
User avatar
galeno
Posts: 2100
Joined: Fri Dec 21, 2007 12:06 pm

Re: New to investing (Chile)

Post by galeno »

As a 30 year old non US investor without US tax treaties you should hold 80% VWRD + 20% WB (World Bonds).

You can choose either USD-hedged WB (AGUG) or non-hedged (AGGG).

We are older retirees. We prefer the distributing versions of our stock and bond UCITS ETFs.

As a young accumulator you may prefer the accumulating versions.
KISS & STC.
Topic Author
andyesm
Posts: 4
Joined: Wed Sep 09, 2020 6:39 pm

Re: New to investing (Chile)

Post by andyesm »

galeno wrote: Sun Sep 13, 2020 5:50 am You can choose either USD-hedged WB (AGUG) or non-hedged (AGGG).
As a young accumulator you may prefer the accumulating versions.
Thanks Ted and galeno for the replies.

I was leaning towards accumulating versions already, so that leaves me with VWRA in my case, right?.
Do you recommend the 80/20? or can I go riskier? with 90/10 for example.

Also, sorry to ask but, what is the difference between hedged or non-hedged? (which one would be better?)
TedSwippet
Posts: 3100
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: New to investing (Chile)

Post by TedSwippet »

andyesm wrote: Mon Sep 14, 2020 1:00 pm Also, sorry to ask but, what is the difference between hedged or non-hedged? (which one would be better?)
There is a long article here that describes what currency hedging is, and why you might want it:

How does currency hedging of foreign bond UCITS ETFs work?

The summary is:
  • If you hold assets that are in your own country's currency, your returns are the 'asset returns'.
  • If you hold unhedged assets outside your own country's currency, your returns are 'asset returns +/- currency exchange rate changes'. That is, if your local currency weakens your effective return rises; if it strengthens, your effective return falls.
  • If you hold hedged assets outside your own country's currency, the ETF uses currency futures alongside your assets to 'hedge', so that your returns are again the 'asset returns'. The hedging removes the currency exchange rate component (for better or for worse).
The prevailing wisdom is that currency hedging is not generally used or recommended for equities, but it is perhaps worth having for bonds. That said, it is very unlikely that you can obtain anything common (iShares or Vanguard, say) that hedges to CLP, though maybe some local funds or ETFs will. The CLP used to be pegged to the USD, but no longer, so hedging to USD is may not be of much use to you. So completely unhedged is I think going to be your most likely course.
international001
Posts: 1566
Joined: Thu Feb 15, 2018 7:31 pm

Re: New to investing (Chile)

Post by international001 »

Did you consider adding funds to the wiki list?
Not sure if Chile allows free-tax interchange of funds, but for the countries that do,it's certainly an invaluable tool for rebalancing
texasdiver
Posts: 3472
Joined: Thu Jun 25, 2009 12:50 am
Location: Vancouver WA

Re: New to investing (Chile)

Post by texasdiver »

It just so happens that my brother-in-law is an investment banker for one of the largest international banks in Chile (on the commercial investment side) and he is sitting in my living room right now on vacation. So I posed your question to him.

He says the best bet for a small scale investor in Chile is to go to one of the reputable brokers in Chile. He named two: LarrainVial and BTG Pactual as reputable brokers. And then just buy index fund ETFs. He says you can get Blackrock or Vanguard US and International index ETFs to put together a simple portfolio 3-fund portfolio as recommended here. He said there is also one Chilean stock market index ETF available as well.

He says there really isn't any good way to do online investing like we do here in the US with electronic transfers from your bank to Vanguard or Fidelity or an online brokerage to buy ETFs. You pretty much have to find an actual broker to use.

That is the HOW.

As for WHAT ETFs to buy, you can do your own research here or get advice from brokers there. They should know the tax implications of different types of international ETFs. Just do what you can to minimize costs by sticking with index funds.
Topic Author
andyesm
Posts: 4
Joined: Wed Sep 09, 2020 6:39 pm

Re: New to investing (Chile)

Post by andyesm »

TedSwippet wrote: Mon Sep 14, 2020 5:52 pm The summary is:
[*]If you hold hedged assets outside your own country's currency, the ETF uses currency futures alongside your assets to 'hedge', so that your returns are again the 'asset returns'. The hedging removes the currency exchange rate component (for better or for worse).[/list]
Thanks again Ted for the explanation. I will check the link you provided.
international001 wrote: Mon Sep 14, 2020 7:21 pm Not sure if Chile allows free-tax interchange of funds, but for the countries that do,it's certainly an invaluable tool for rebalancing
Yes that would be wonderful for rebalancing. Unfortunately, I don't think I have can do that over here.
texasdiver wrote: Mon Sep 14, 2020 8:05 pm He says the best bet for a small scale investor in Chile is to go to one of the reputable brokers in Chile. He named two: LarrainVial and BTG Pactual as reputable brokers. And then just buy index fund ETFs.

Thanks for your insight texadiver;
I have heard both of those brokers before, but i was going with "Renta4" since i can do everything online. Will have to check what options LarrainVial and BTG Pactual can offer.
As you mentioned, the idea is to just buy index fund ETFs, and that would probably be VWRA + IGLA/AGGG(?) in my case.
international001
Posts: 1566
Joined: Thu Feb 15, 2018 7:31 pm

Re: New to investing (Chile)

Post by international001 »

andyesm wrote: Mon Sep 14, 2020 10:04 pm Yes that would be wonderful for rebalancing. Unfortunately, I don't think I have can do that over here.
Ok.. but double check ;-)

Thanks for your insight texadiver;
I have heard both of those brokers before, but i was going with "Renta4" since i can do everything online. Will have to check what options LarrainVial and BTG Pactual can offer.
As you mentioned, the idea is to just buy index fund ETFs, and that would probably be VWRA + IGLA/AGGG(?) in my case.
Any reason why you want to hedge to Euro? You may as well find something unhedged and save you the cost. I wouldn't have a high allocation of unhedged bonds, regardless. They give you lots of currency risk. Better global than goverment (more risk and return). You can even explore if you have CDs in Chile or Chilean bonds

Renta4 I think charges custody for ETFs that may be higher than funds. So explore if with a fund you can reduce the total ER. Vanguard funds are usually good, but you need a minimum of 100k. Amundi are an option as well.
User avatar
galeno
Posts: 2100
Joined: Fri Dec 21, 2007 12:06 pm

Re: New to investing (Chile)

Post by galeno »

Chile and Costa Rica are very similar. Both very tied to the USD and both have local currencies which pay higher yields vs the USD.

We are older CR retirees that USE cash so we use distributing ETFs. Our port: 50% VWRD + 45% AGUG + 5% CASH

As a young accumulator that INVESTS cash your best basic port: 80-100% VWRA ÷ 0-20% VAGU.

To keep it simple just use 100% VWRA. Keep 3-6 months of cash living expenses in either USD or Chilean Pesos.
KISS & STC.
texasdiver
Posts: 3472
Joined: Thu Jun 25, 2009 12:50 am
Location: Vancouver WA

Re: New to investing (Chile)

Post by texasdiver »

andyesm wrote: Mon Sep 14, 2020 10:04 pm Thanks for your insight texadiver;
I have heard both of those brokers before, but i was going with "Renta4" since i can do everything online. Will have to check what options LarrainVial and BTG Pactual can offer.
As you mentioned, the idea is to just buy index fund ETFs, and that would probably be VWRA + IGLA/AGGG(?) in my case.
My brother-in-law is older and wealthy and manages enormous sums of money so he probably just picks up the phone to his broker and gets immediate service. Those were the two he mentioned as reputable and easy to use because they have offices all over. But for someone in your position, a younger, hungrier, and more online firm might be preferable. You'll just have to shop around. They are all selling the same product so keeping the fees low is the main objective.
international001
Posts: 1566
Joined: Thu Feb 15, 2018 7:31 pm

Re: New to investing (Chile)

Post by international001 »

galeno wrote: Tue Sep 15, 2020 7:01 am Chile and Costa Rica are very similar. Both very tied to the USD and both have local currencies which pay higher yields vs the USD.
For the past 10 years, it seems you would have been better hedging to EUROS
https://www.xe.com/currencycharts/?from ... P&view=10Y
https://www.xe.com/currencycharts/?from ... P&view=10Y

galeno wrote: Tue Sep 15, 2020 7:01 am As a young accumulator that INVESTS cash your best basic port: 80-100% VWRA ÷ 0-20% VAGU.

To keep it simple just use 100% VWRA. Keep 3-6 months of cash living expenses in either USD or Chilean Pesos.
I guess there are no unhedge options for international investors (of I don't know of any)
Consider if you can to get long term bonds (like IE00BD8PGZ49). For just 20% of bonds, they diversify better stocks, and currency is less of an issue

If you hold cash, better in your own currency.
User avatar
galeno
Posts: 2100
Joined: Fri Dec 21, 2007 12:06 pm

Re: New to investing (Chile)

Post by galeno »

The equity UCITS ETF VWRx is UNHEDGED. x is simply the currency of your accounting and whether it is accumulating or distributing.

World Bonds can be HEDGED or UNHEDGED. Distributing or accumulating.

We hold our cash in USD and convert it to CRC as needed.
KISS & STC.
international001
Posts: 1566
Joined: Thu Feb 15, 2018 7:31 pm

Re: New to investing (Chile)

Post by international001 »

galeno wrote: Wed Sep 16, 2020 9:35 am The equity UCITS ETF VWRx is UNHEDGED. x is simply the currency of your accounting and whether it is accumulating or distributing.

World Bonds can be HEDGED or UNHEDGED. Distributing or accumulating.

We hold our cash in USD and convert it to CRC as needed.
Yes.. but do you know any fund/ETF with unhedged bonds?
Holding cash on another currency than the one you are going to expend is not a good move. It's too much volatility for too little return. I would avoid it if possible.
User avatar
galeno
Posts: 2100
Joined: Fri Dec 21, 2007 12:06 pm

Re: New to investing (Chile)

Post by galeno »

AGGG is the UNHEDGED version. Lots of non- US investors prefer the unhedged.

I'm not totally sold on hedged. The pluses and minuses cancel each other out.
international001 wrote: Thu Sep 17, 2020 10:46 am
galeno wrote: Wed Sep 16, 2020 9:35 am The equity UCITS ETF VWRx is UNHEDGED. x is simply the currency of your accounting and whether it is accumulating or distributing.

World Bonds can be HEDGED or UNHEDGED. Distributing or accumulating.

We hold our cash in USD and convert it to CRC as needed.
Yes.. but do you know any fund/ETF with unhedged bonds?
Holding cash on another currency than the one you are going to expend is not a good move. It's too much volatility for too little return. I would avoid it if possible.
KISS & STC.
glorat
Posts: 659
Joined: Thu Apr 18, 2019 2:17 am

Re: New to investing (Chile)

Post by glorat »

All these above options around VWRx and global bonds like AGGx - have a look at https://www.boglebot.com that covers all these options with some explanation. Feel free to post the results back here!

Disclaimer: I am the author of that site
nikhoxz
Posts: 4
Joined: Wed Sep 09, 2020 11:27 pm

Re: New to investing (Chile)

Post by nikhoxz »

I'm chilean and i'm investing in some chilean ETF, specifically the Singular ones, which are low risk bonds, corporate bonds and global equities (Total Market + S&P 500 and Large Cap of the EU, Japan, Asia, etc..)

You can find these in the Bolsa de Santiago and buy them from any broke, like Renta4..
CFIETFCC
CFIETFCD
CFIETFGE

The good thing is that you don't have to wait an entire year as you only have to pay the $3500 Clp for the daily operation in Santiago's stock exchange, while with foreign ETF you have to pay 15 usd for any operation (or 0.25% if the value is higher than 15 usd)

There are also some inversion funds (not mutual funds but very alike) maybe you can find something interesting: https://www.sartor.cl/es/areas-de-negoc ... management
Last edited by nikhoxz on Mon Sep 21, 2020 2:38 pm, edited 1 time in total.
Topic Author
andyesm
Posts: 4
Joined: Wed Sep 09, 2020 6:39 pm

Re: New to investing (Chile)

Post by andyesm »

glorat wrote: Thu Sep 17, 2020 8:27 pm All these above options around VWRx and global bonds like AGGx - have a look at https://www.boglebot.com that covers all these options with some explanation. Feel free to post the results back here!
Disclaimer: I am the author of that site
Thanks glorat will do.

nikhoxz wrote: Fri Sep 18, 2020 7:31 pm I'm chilean and i'm investing in some chilean ETF, specifically the Singular ones, which are low risk bonds, corporate bonds and global equities (Total Market + S&P 500 and Large Cap of the EU, Japan, Asia, etc..)

You can find these in the Bolsa de Santiago and buy them from any broke, like Renta4..
CFIETFCC
CFIETFCD
CFIETFCE

The good thing is that you don't have to wait an entire year as you only have to pay the $3500 Clp for the daily operation in Santiago's stock exchange, while with foreign ETF you have to pay 15 usd for any operation (or 0.25% if the value is higher than 15 usd)

There are also some inversion funds (not mutual funds but very alike) maybe you can find something interesting: https://www.sartor.cl/es/areas-de-negoc ... management
Hey nikhoxz, great info

I will check it out. Do you use Renta4 or another broker?
nikhoxz
Posts: 4
Joined: Wed Sep 09, 2020 11:27 pm

Re: New to investing (Chile)

Post by nikhoxz »

andyesm wrote: Sat Sep 19, 2020 7:19 am
glorat wrote: Thu Sep 17, 2020 8:27 pm All these above options around VWRx and global bonds like AGGx - have a look at https://www.boglebot.com that covers all these options with some explanation. Feel free to post the results back here!
Disclaimer: I am the author of that site
Thanks glorat will do.

nikhoxz wrote: Fri Sep 18, 2020 7:31 pm I'm chilean and i'm investing in some chilean ETF, specifically the Singular ones, which are low risk bonds, corporate bonds and global equities (Total Market + S&P 500 and Large Cap of the EU, Japan, Asia, etc..)

You can find these in the Bolsa de Santiago and buy them from any broke, like Renta4..
CFIETFCC
CFIETFCD
CFIETFCE

The good thing is that you don't have to wait an entire year as you only have to pay the $3500 Clp for the daily operation in Santiago's stock exchange, while with foreign ETF you have to pay 15 usd for any operation (or 0.25% if the value is higher than 15 usd)

There are also some inversion funds (not mutual funds but very alike) maybe you can find something interesting: https://www.sartor.cl/es/areas-de-negoc ... management
Hey nikhoxz, great info

I will check it out. Do you use Renta4 or another broker?
Mainly Renta4, all the ETFs i mentioned are there (i edited the mnemonic of the third one because is CFIETFGE instead of "CE" at the end)

Altough instead of that "Global Equities" chilean ETF if you have over 6000 usd and you are planning to hold for a long time, i think the best option would be VWRA (this is accumulative, which es better for the long term if you dont care about dividends)

If you don't have too much money, or you are just starting, maybe Fintual (mutual funds) would be a better option, as you can add low amounts of money without paying comissions, also mutual funds have some tax benefits in Chile. Their comission is low (for mutual funds), 1.19% for the main three funds (Risky Norris, Moderate Pitt and Conservative Clooney) if you are interested i could pm you my referral link.

Another option is Racional, they work with Vector Capital broker... i also have a referral code for them, they will give you $10000 clp if you use my code, but sincerely i think Fintual is a better option, although free money is always good right?
Post Reply