Investing from Brazil

Investing from Brasil provides information for investors domiciled in Brasil who wish to apply the Bogleheads® investment philosophy. There are a series of peculiarities you must be aware of. This article introduces some of them.

In particular, the choice from the investing options available are not entirely advantageous to the use of a Boglehead and a DIY approach. The costs of funds including ETFs and the range of funds available to Brasil tax domiciled residents are significant issues that should be carefully researched and understood before committing to any purchases. Please ask portfolio questions in the Bogleheads forum and contact a professional advisor before acting on them.

Considerations for investing from Brasil
Generally investing in an emerging market such as Brasil is somewhat different than investing in US, and here are some reasons:

Conservative investment culture
Despite lower yields in comparison to other investments, saving accounts remain the favorite option among Brazilians holding some money. According to a survey by the National Confederation of Store Managers (CNDL) and the Credit Protection Service (SPC Brazil), this is the case for 65% of people. In addition it is worth noting that only 20% of people actually manage to save. The survey went on to state that investments in private pension accounts totaled for 7% of mentions, while investment funds, bank deposit certificates and federal government bonds accounted for 5%, 4% and 4%, respectively.

The second most common form of saving among Brazilians is to leave money at home, reported by 25% of respondents

Brazilians’ high usage of savings accounts and the high share of assets under management (AUM) invested in fixed income products places it on the conservative end of the investment spectrum, especially when compared to other emerging markets.

Inflation
A normal inflation rate here is 4.5%. Last year (2019) the inflaiton rate was 6%, while an alternative index had a 10%+ rate.

Fixed income
Bond funds are taxed from 22.5% to 15%, depending how long you keep them.

Equities
Stock funds are taxed at 15%.

There is no dividend distribution, everything is always reinvested. Stock dividends pay no tax.

If you own stocks and sell less than R$20,000 per month you pay NO tax on the appreciation.

Costs
Bond funds costs 0,7-3,5% per year.

Most stock funds costs 4% per year.

Single stock funds costs 1,5% per year. (The fund invests in only 1 stock and charges 1,5% per year). There are have some iShares ETFs with 0,69-0,79% cost. There is an index ETF called PIBB that costs 0,0059% per year, which is probably the cheapest fund in the world.

Cash
The more or less equivalent of cash is called "Poupança", a type of saving account that yield always ~0,5% per month. This return is obligatory by law. There is no tax on the returns.

Bonds
In Brasil there is a product somewhat similar to Treasury Direct. In Brasil it is called "Tesouro Direto", and you can check the rates here: http://www.tesouro.fazenda.gov.br/tesou ... itulos.asp. The IPCA ones yielding ~5.8/6.5% are the exact equivalent of TIPS. They do have a cost of at least ~0,3% per year and are taxed 15%.

Stocks
Our main index (Ibovespa - IBOV) contains only 69 stocks. 85% of our capitalization is made of only 75 stocks. The small cap index (with the bottom 15%) has only 55 stocks in it. We then have a few hundred micro cap stocks that trade VERY thinly, with less than 1 trade for MONTH and 10-15% spreads. Two "giga" stocks dominates 30% of the Ibov index - "Petrobras" and "Vale do Rio Doce".

REITS
REITS dividends pay NO tax. Current yield (based only on dividends, not total return) on many funds are currently ~8,5% even after a 30% runup last year.