If you’re retired or a conservative investor who cannot afford to lose money, your bank certificate of deposits are about to become worthless. Or close to worthless. For sure, as the Fed cuts rates this year, and maybe in two weeks, things like bank CDs and Treasury holdings will be worth much less than they were a year ago.
You can’t go to Europe to make money in fixed income. You can’t go to Japan. If a retiree wants to make money on cash without putting it into the stock market, they have one option in the conservative fixed-income space: non-U.S. debt. If they don’t mind risk, they can buy U.S. and European junk bonds.
Investors don’t have to be highly sophisticated to buy things like Ecuador dollar denominated debt. In 2015, for example, investors bought new issue Ecuador debt and were paid 8.5% interest on it annually.
Buying individual country bonds can be a costly endeavor. It often requires large upfront investments. In the case of Ecuador bonds, some require a minimum $200,000 up front. Ecuador is not investment-grade.
On Monday, BlackRock Investment Institute, the think tank arm of the world’s largest investment manager, said investors should hold local-currency, long-term debt in Brazil, Mexico, India and Indonesia, all paying over 4%.