Opinion – From Grain to Grain: Investing abroad does not mean protecting yourself; understand

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Investing internationally is becoming easier and simpler. The trend is that it will become even simpler with the entry into force of Law 14.286/21 at the turn of the year. However, the Brazilian investor still confuses the objective of investing internationally. Part of the blame lies in a fallacy that propagates through publicity and ignorance. I explain the confusion and what trap you need to be careful not to fall into.

Yesterday I came across the celebration of an international brokerage that said that in the last month it raised R$ 1 billion from Brazilians. Celebrating achievements is always good.

The problem begins with stating the reason for this achievement. As stated, it ends up encouraging investors, deceiving them and allowing them to eventually become frustrated with international investments.

The brokerage justified the act of investors applying internationally, as they wanted to protect themselves.

Most people fall into this marketing trap. This is also known as a mental trigger.

In the book The weapons of persuasion, the author, Robert Cialdini, renowned professor and psychologist, describes this well. I strongly recommend that you read this book.

If someone says that many people are doing something to protect themselves, be careful, as they are possibly trying to trick you. You are encouraged and comfortable by social acceptance, as many people have. A fear trigger was also placed: what do these people know that you don’t know and what are they protecting themselves from?

The sentence as it was put is similar to the situation when, walking down the street, you see a crowd running to one side and someone suddenly says: run to protect yourself. You may not know what happens, but the vast majority will also run together in the same direction.

Understood the psychological issue, let’s clear up the first confusion: investing internationally does not mean protecting yourself, but diversifying or betting.

Diversifying doesn’t mean you’re hedging.

The act of diversification is carried out when uncorrelated assets are added to the portfolio, that is, those that when one falls the other rises. Thus, it reduces the volatility of the total portfolio. Note that the asset that falls may just be the international one, as happened this year.

If you are a conservative investor and are used to the CDI, you will quickly understand that international investment, even in fixed income, is far from stable like the CDI.

For example, if you invest only in assets referenced to the CDI and decide to invest internationally, you are increasing your risk and making a bet, not protection.

The only question that justifies thinking about protection is in one of the situations below:
1- you are a businessman and want to make it more difficult for the judiciary to reach your assets due to some legal dispute, for example, with taxes or employees;
2- you have legal problems or want to hide the money. Today with bilateral agreements, this is increasingly difficult;
3- you have a dollar debt, intend to live abroad or send your children to study abroad. Therefore, it has a liability to be paid in a fixed term;
4- you fear that the government will restrict the purchase of international currency.

Some attribute protection to the fourth element. However, this does not seem to be a rational justification, as all investment legislation and the flexibility of sending funds abroad point in the opposite direction.

It is not appropriate to think about purchasing power protection, as purchasing power protection occurs when investing in assets referenced to short-term inflation in its currency, that is, the Real.

I am in favor of international diversification. However, you need to understand what it can result in return and volatility for your portfolio. Explaining this is my goal for the next article.

Michael Viriato is an investment advisor and founding partner of Investor House

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