Applying Poker Principles To Overseas Investing
I’ve often been told that stock market investing is little more than gambling. And the way some people approach the stock market, this can be true.
Some investors seek genuine, long-term value and do a lot of research before buying. Others—the gamblers—quickly move money around in accordance with trends, momentum, and news flashes. Both types of investors can make money.
But regardless of which kind of investor you are, some of gambling’s tenets still apply. Specifically, for the sake of risk management and conservation, it’s good to “take some of your winnings off the table” after a good streak, rather than letting the entire windfall ride…
This is why I’m spending time this month doing some international rebalancing. That is, taking some funds out of the record-level U.S. equity market, and redeploying them abroad.
Here Are Some Facts About The Current State Of The U.S. Markets
I’m not an economist, and I won’t pretend to be. But I can guarantee you this: My ability to see into the future is on par with the best of them. That is to say, it is nonexistent.
But I do pay attention to trends… in the same way that a gambler would stop and think after winning 10 spins in a row.
The U.S. stock markets are far into virgin territory, at all-time record highs, and many IRAs, 401ks, and portfolios have seen the benefit. That’s the time to become wary.
There are three factors that I’d consider at this stage of our economic cycle.
- Since the Great Depression, the longest time between recessions has been 10 years (during the 1990s).
- The average time between recessions has been 4.7 years.
- As I write this today, the time since our last recession is 8.4 years… almost twice the average, an uninterrupted period of prosperity.
So, by our own historic measure, we are due for a recession. Of course it could start tomorrow or years from now. There’s no way to know. But a pullback is certainly far more likely today than it was a few years ago.
During a recession, the Federal Reserve will lower interest rates to help turn it around. But this time there’s a slight problem, looking at history:
- The smallest recession rate cut ever has been around 2%.
- The largest recession rate cut was close to 10%.
- Since the 50s, the average recession interest rate cut has been about 4%.
The problem is this: As of today—with a current Fed funds rate of just 1.25%—there is simply nowhere to go. Even a rate cut that matches our smallest in history will put us into negative-rate territory.
Growth Of Stock Prices
Since the end of the last recession, stock prices have risen 332% (as measured by the S&P 500). And perhaps more importantly, it’s up 166% since the pre-recession peak.
What’s more, stocks today are overpriced, as measured by comparing the S&P 500’s Price to Earnings ratio to its historic performance.
Today’s P/E ratio is 25.48, meaning that company stock prices are more than 25 times their earnings. The only time it’s been higher was once during the Dot-com Crash, and then again during the Great Recession. The mean P/E ratio (since 1870) is just 15.6… 39% less than today’s valuation.
What Would You Do In A Card Game?
Picture yourself in a high-stakes card game. You’re on a remarkably long streak, and statistically, due for a bust… the bust will be particularly hard to recover from… and you’ve doubled or tripled your money so far in the game. You would probably not let all your winnings ride on the next hand… it would be sensible to take some of those profits off the table.
Likewise, now is the perfect time to skim your gains out of the U.S. stock markets, and diversify them abroad by investing in an overseas property. This is easily done if you have a normal portfolio. But even if you have an IRA or a 401k, you can convert these tax-deferred funds into a self-directed plan, and put those dollars to work abroad.
Here Are Some Top Considerations For Investing Abroad
As a way of demonstrating the wide variety of choice out there, here are a few special considerations employed by many expats moving abroad.
The Dollar’s Strength Against World Currencies: As we discussed in a recent report, the formerly record-setting value of the dollar has retracted from its peak. But there are still places where the dollar is strong, resulting in a hefty dollar discount for U.S. dollar buyers. Follow this link to read about places where the U.S. dollar still retains its strong buying power.
Developer Financing: One way to multiply your buying power for any investment is by leveraging. However, financing can be very difficult to obtain abroad. Here are three projects I’ve seen recently where the developer is offering financing for your purchase.
The Stability Of Buying In U.S. Dollars: Many people want to diversify their holdings outside the U.S., but do not want to take on the additional variable of buying a property in a foreign currency. Currency diversification is good… but you may prefer to accomplish it in other ways, such as by opening a foreign bank account. Here are four places where properties trade in U.S. dollars.
Boating And Golfing: Switching lifestyle criteria, if you’re a boater, here are three top locations (and property examples) with good marine facilities. If you’re interested in golfing by the sea, here are two good options where the golf course comes with a beach.
It’s Not About Predicting Doom… It’s About Preparedness
Make no mistake… I’m not predicting an imminent market crash or major correction. For all I know, the market could soar upwards for another three years… or for another three days.
My only advice is to consider rebalancing, by taking some of the past eight years’ gains and investing them abroad.
The options for investing in a property overseas are almost limitless. You can put your money to work in a hard asset while achieving a good measure of portfolio diversity… including geopolitical, economic, and currency diversity.
And there’s no better time to do it than now.
Editor, Overseas Property Alert
I am a Florida resident and I have never been to South America. I am planning on going to Colombia to visit the family of a friend who is a Colombian national. I would like to stay there for 180–182 days.
In addition to my U.S. Passport, do I need a visa? We will be flying into Bogotá and staying in the greater Bogotá area.
Please share any thoughts that you may have regarding my trip. You and I met and talked a few times at an Orlando conference in 2015. Thank you in advance for your reply.
My long-term plans might become: marrying my Colombian friend, living there repeatedly for 182 days per year, and getting a Colombian passport if that is possible.
You can enter Colombia without a visa, and you’ll normally be granted a 90-day entry on arrival. You can extend this tourist entry, and your overall limit will be 180 days in any 12-month period. So no, you really don’t have to have a visa.
But you may want a visa anyway.
Since you’ll be in Bogotá, you can go to the ministry (Ministerio de Relaciones Exteriores), and obtain a residency visa. With this visa, you’ll get a cédula (national ID card), which will give you access to most everything Colombian citizens have… the most important of which will be the banking system and health care.
The ministry is located on Carrera 19, #98-03. I found the process fast and easy, and I was out of the office within an hour. If you don’t speak Spanish, take your Colombian friend with you. The requirements are easy, and you can find them here. As you’ll see, you apply online.
With any type of visa, you can come and go as you please. And in Colombia, having a residency visa does not make you a tax-resident (although staying over 183 days will).
As to marrying a Colombian citizen, this will indeed provide easier access to both residency and permanent residency. With a child, you can jump right to permanent residency.
Can you provide information regarding moving to Argentina for retirement?
We have a number of country hubs on the Live and Invest Overseas website, where you can find quite a bit of information. Follow this link for information on living in Argentina.
I am a Colombian citizen with a 401k account in the USA. That account comes from contributions I made while working there between 2007 and 2010.
How can I use the money in the 401k to buy a property in Colombia?
There are a few ways to go about using your former employer’s 401k to buy a property. One is to convert your old 401k into a self-directed IRA, using a direct rollover. Then you’d use the IRA to buy the property in Colombia (or anywhere else).
Alternatively, you can open a Solo 401k, which is also self-directed (this is what I did). Using a 401k can be easier and less expensive than an IRA, and it requires less oversight… but you need to have some self-employment income to be eligible for a Solo 401k.
Have a question? You can write to Lee here.