Thursday, October 16, 2003
'How do I buy foreign bonds?' a reader asked Chris Weber, a good friend of mine and a former collaborator at The Oxford Club. Chris is an American living in Monaco who has built much of his fortune in bonds over the last 20 years.
He is editor of the Weber Global Opportunities Report, and answered that question in his newsletter. And not only did he explain the importance of holding some foreign bonds in your portfolio; he also outlined exactly how to go about buying foreign bonds - a transaction most American investors would find, well... foreign.
Chris also explains two ways U.S. investors can buy into - and profit nicely from - foreign bonds, while still maintaining their accounts within U.S. borders. Here's what Chris had to say:
Buying Foreign Bonds Made Easy
'Please excuse me for always assuming that most people know how to buy foreign currency bonds. It is a common trap to fall into. If you have been doing something for 20 years you start assuming that it is commonplace. I realize, of course, that it is not.
'Very few Americans have anything outside of the U.S. dollar, and this is unfortunate. You think nothing of buying insurance for your life or your house, but almost no one insures themselves against a fall in the very currency that they work so hard to get and save and invest in.
The Mechanics of Bond Buying
'As to the mechanics, let me try to walk you through them. First of all, the minimum amount of bonds you normally can buy is often 10,000 face-value units. But that doesn't necessarily mean $10,000 dollars...
'For instance, let's look at a short-term New Zealand foreign bond. There is a 6.5% bond that matures in February 2005, just over a year away. Its price is NZ$101.35, so 10,000 units of this would cost NZ$10,135. But since the NZ$ is now 59.62 U.S. cents, the price to you would be US$5,738.
'This sum could be too large for a small portfolio, but for many it should be just fine.
'The more directly your purchase of foreign bonds, the higher the interest rate you'll collect. If you can buy bonds directly in New Zealand, chances are you'll get better rates, but you may not want to have accounts all over the world.
2 Ways to Buy Foreign Bonds In the U.S.
'If you'd rather keep your accounts in the States, you could:
- Try Everbank (www.everbank.com) and swallow the smaller interest rates.
- Call your own broker and see if he does large enough global bond business that the minimums could be put below 10,000 units for you, especially for the euro. It probably is too much to hope that you could get in for just 1,000 units, but stranger things have happened.
'I know that Schwab does a brisk business in foreign bonds now. Maybe your broker does as well. Another thought: Ask your broker if he can buy one-year T-bills in these currencies. It is possible that the minimums could be lower. I wouldn't be too hopeful, however. But answering this question, I begin to see just how difficult it is for most Americans to diversify outside of the U.S. dollar.'
A great explanation of the process of buying foreign bonds. Thanks, Chris.
Editor's note: In addition, Howard Goldstein (website: www.pfswp.com) and Jeff Winn (www.iaac.com) are two U.S. brokers I've known well for over a decade that can easily buy foreign bonds.
A New Study Shows That More Government = More Poverty
On a different note, I recently read an article in The Economist and found it so interesting, I had to share it with you...
We all know that red tape is a hindrance to free enterprise. But a report released recently by the World Bank really drives the point home... Here's what The Economist to say about it:
'In Haiti, one of the world's poorest countries, prospective business people have to wait an average of 203 days for permission to start [doing business]. Then they have to pay registration costs and satisfy minimum [money] requirements of around four times the average Haitian's annual income.
'Other countries are as bad. In the Democratic Republic of Congo, it takes even longer to unwind red tape. Set-up costs, including capital requirements, amount to around ten times average income. In Belarus, costs are lower, but budding entrepreneurs must endure 19 separate paper-pushing exercises. At every step, there is a chance of falling prey to corrupt officials.
'The juxtaposition of stifling bureaucracy and abject poverty is no coincidence, argues a new report, 'Doing Business in 2004', by the World Bank. It offers one of the first consistent, rigorous portraits of the costs of business regulations in poor countries. One lesson jumps out of the data: the more heavily regulated a country's business environment, the likelier it is to be poor. The report says that developing countries are choking off one of their best avenues towards wealth creation: local business.'
A lesson to us all - and our politicians.
Today's IU Cribsheet
- For more on Chris Weber or his Weber Global Opportunities Report, you can check out IU E-Letter #268 - The 'Max-Yield' Strategy.
- The report from the World Bank is online in the bottom right corner of this web page: http://rru.worldbank.org/doingbusiness/
Good investing,
Steve
