Borrow Low, Invest High?

At what rate did he borrow it? 5 or 6 %? And what is his average rate of return in Argentina? If he diversified his risk through say 10 institutions and get burned by one then that sounds like he would probably be losing money. Sounds foolish to me. Borrowing money and investing it through finance houses where he HOPES he wont get burned. I would only invest money in those institutuions that I would be willing to lose..definately not borrowed money.
Larry

I guess so Fred

Just think of all the work involved in keeping track of his investments if he really did try to diversify the money in several places. Coupled with the risks involved would it really be worth it?
Larry

I had a friend that borrowed money on credit cards, invested every penny he had and margined to the max in the stock market.

He went over a million in value on his portfolio bought a big ass sail boat and is now so poor he cant even afford to pay attention.

Don't invest borrowed money and that should be a lesson. The dumb son of a bitch started to borrow money when he had margin calls. Now he owes so much money he will never be able to pay it.

I knew people that did the same crap with real estate. Put no money down had negative cash flow hoping for capitol gains when they sold. Some of them flew high for a while. They are broke dopes now also.

This stuff is just too risky - besides - my daddy thought me never to trade on margin!

Bad idea. First of all, you could lose all or a significant part of your investment. Risky investing should only be done with money that you can afford to lose. Obviously, if you have to borrow the money in the first place, it is money that you do not have and presumably can not afford to lose.

It might work. You might lose more than you have.

How about getting rich the good old fashioned "slow" way through sensible investing? It works and can be a lot of fun!

P.S. I have not yet gotten rich the good old fashioned "slow" way, but if anyone would like to donate to my cause....

Only risk money you can lose

It is ok if you can afford to lose all the money you got.

Just takes one mistake to screw up all the returns. Also financial institutions are NOTORIOUS for selling products that they make max commission on.

I had a friend peddling such opportunities on behalf of Citibank and they got royally screwed...

hypothetically and if the market doesn't change too fast this should work;

eg. at the moment you get for 500.000 Pesos 30 % interest rates/year just if you put this ammount on a dominican savings account.

if you consider a rate of 6 % for borrowing this ammount you make 24 % profit/year.

Yeah, you can make 24% on the pesos but then it will depreciate 50% against the dollar to give you a net loss of 26%! Wise decision.

I work very hard for 30 years!That worked for me!!!

I had two houses,a 403b,and a nice "pension plan" where I worked for 25 years.I sold the houses,took my "pension" money,and "retired" to the DR 8 years ago!I got a good paying job here.It is now a "Lousy Paying Job" because the peso went from 12 to 1 to 35 to 1!Guess what,I don't care! My "DOLLARS" went from 1 to 12 to 1 to 35!!!!! I am "Better Off" today than I was 8 years ago! Smarter men than you have lost everything trying to get "Easy Money"!
I sleep very well every night,I have money in the bank.Not "Baniter" thank God,but "Fleet Bank"!
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Investment Calculations - Opinions Please

I have done some very basic calculations using quite loose assumptions and the results are quite interesting.

I took US$10,000 and compounded it a 6% for 8 years. Which amounted to US$15,938 at the end of year 8. I then took the equivalent of US$10,000 converted it to $RD at an exchange rate of 12:1 (this was the rate 8 years ago) which equals RD$120,000. I compounded this amount at 15%-year 1, 16%-year 2, 17%-year 3, 18%-year 4, 19%-year 5, 22% year 6 and 24% for years 7 and 8 (this is a estimate at the rates paid on a peso investment over the last 8 years, please correct me if I'm wrong I had a hard time finding actual historical interest rate figures for the DR online); after 8 years the investment amounts to RD$493,349. Converted to US$ at an exchange rate of 32:1 this amounts to US$15,417.

Using the same interest rates for each currency at the end of year 10 = US$17,908 and $RD758,974, even if the exchange rate goes to 40:1 by year 10 the RD$ still converts to $18,964.

I realize the risk and the loss of sleep is a high cost for what results in close to the same return after 10 years with the depreciation of the RD$, but if the peso stabilizes then the return possibilities are huge especially for anyone who converts to pesos while it's at 32:1 (assuming, of course, it doesn't go to 100:1).

I don't have any investment experience in the DR so please excuse me if this post sounds naive, but I would love to hear your opinions and comments.

-j

Joanne

My opinion is that if I am getting a fixed rate of 6% on my money I know I am getting 6 % . If I am getting a fixed rate of 7%, I know I am getting 7%. Who wants to be doing all that calculating you just did and who wants to lose sleep watching the peso exchange rate fluctuate day in and day out? Too precarious for me but too each his own I guess.
Larry

As some incredibly wise sage once said (No, not you Jazz, the other one!!) ... "There are lies, damned lies & then there are statistics"!!! US $ CD's start at 2.5% pa in some banks down here & up to 7%pa in others. Then there are the Finance Houses giving a rate of 10% fir US $10K, 12% for US $50K & 14% for US $100K. ALL are compounded for the ineterst left in!!!

Now THOSE rates would do wonders to your calculations on whether to go US $ or RS Pesos Joanne. But then again, these are just statistics!!! - Grahame.

while the idea you have is possible, this is exactly the wrong time to try it. If anything the interest rates right now are too low considering the risk.

DCfred said:

JoanneH


Thanks for your calculations. I know that my friend in Argentina has made this thing work for him. As he put it, some people borrow to start a business with no gurantee of making money. But he also said the trick is dollar cost average the returns you get from the investment. Even in the DR scenario, the peso did not lose 50% over-night. Anyway, food for thought.

Click to expand...

It lost 50% in less than a year. That is overnight compared to the last period of time it lost 50%.

Joanne... Historically speaking you are correct. If you put a hundred dollar in Pesos 10 years ago you would have done better than if you did 100 dollars in dollars with the vigorish they pay on Pesos in the DR. Until last year that is. Depreciation went over 100% against the dollar.

It will also cost you more to trade the pesos for dollars than you are accounting for. You are giving the figure to SELL dollars not BUY dollars.

In my opinion I wouldn't put money in Pesos even if they boosted the rate 5 more percent over the dollar. I get 15+ on Dollars now in the DR with a finance house and feel way more secure than I would in a bank.

Scott

Rule #1 of investing: there is no free lunch. What DCfred describes is tanatamount to currency speculation. Depending on the currency, you can hedge these with forward contracts or in the futures market. Hedging is not free. It costs money.

The scheme depends on the trader's ability to predict currency fluctuations. No more no less. Most of the returns over the short term depend on luck. If you are not an experienced forex trader, I say forget about it. Try your luck somewhere else.

As for JANH's calculation, consider this. If you had US$10,000 in January/2002 and converted it to DR$ 170,000. Put it in an account to earn 24% over a year and a half.....you would have about DR$234,600 now. Convert that to US$ and you get US$6,900 at today's exchange rate.

Therefore, historically speaking....you are screwed....you started with US$10,000 and a year and a half later you have US$6,900. These calculations do not have much value because the result is totally dependent on the time period used.

In summary....if you are offered a free lunch.....walk away.

Thanks for the input. Running 100 scenarios will never compare with hands on experience.

(statistically speaking, of course

-j

You are not taking into consideration one very important thing!!!

The "Buy" and the "Sell" rate on US Dollars!!!!! when they are "Buying your dollars, at 34 to one on this day,if you want to convert all those pesos you have into US dollars you must pay 36,or more,pesos to the dollar.The only people who ALWAYS make money are the "Casas De Cambio"
Dollars have NOT been for sale lately! You might have to move to the DR to enjoy spending your pesos.The inflation rate here will also eat up your earnings,if you have to use the pesos here!


Cris Colon