Hi everyone,
I live in a Latin American country where there are no Vanguard type index funds. From reading this forum, I understand that they are the preferred vehicle for long term investment due to diversification, low cost and high expected return over the long run. Regrettably, as they are not available in my country, I'm having a hard time finding options that cover these criteria.
The following options are available:
- Term deposits in local currency: depending on term and amount, they can yield up to 7% annually. No risk as they are covered by deposit insurance up to USD30k equivalent per institution. Tax exempt.
- Mutual funds: all are actively managed (no index funds) and charge large fees (up to 3% in some cases).
- Buying stocks in the stock market directly: the local stock index is highly volatile (large exposure to the commodity cycle), so if adequately diversified and on a long-term basis, should be a good investment. However, broker's fees are high (around 1% per transaction with a minimum of ca. 15USD equivalent). Hence it is necessary to invest relatively large "chunks" and also difficult to diversify.
- Voluntary contribution to AFPs: in my country and many more in Latin America, the pension system is based on mandatory private funds called AFPs. 10% of salary is deducted monthly and tranferred to the employees´ AFP account, which is administered basically as a mutual fund. These funds can only be accessed at retirement age. There is an option to contribute voluntarily any additional amount to these funds, and these voluntary investments can be redeemed at any time. Fees are around 1.8% though.
From a diversification and expected return point of view, it would seem that voluntary AFPs are the best choice. However, the fees are significantly higher than those recommended in this forum.
Should I instead slowly build a stock portfolio (buy and hold, no trading)?
m