Author Topic: US stocks vs CDs in another country  (Read 1606 times)

Vecar

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US stocks vs CDs in another country
« on: April 06, 2015, 03:47:59 AM »
Hello everybody,

My name is Max and I'm from Russia.

I've been looking into getting some US stocks, when it hit me: US market appears to be near the top right now so maybe I should wait it out?
I can easily get up to 6.5% for up to 5 years in tax-free government-insured USD CDs right now, which I can then cash out of without losing accumulated interest at any moment when the US market goes down again.

I know this is market timing and it's frowned upon around here, but in these kind of conversations it is always assumed that the alternative to stocks is measly 1% tops CDs, which is obviously not a good idea. But my alternative is very different, so I thought you might have some insightful advice for me.

Thanks in advance!

Vecar

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Re: US stocks vs CDs in another country
« Reply #1 on: April 06, 2015, 06:47:43 AM »
I've just checked and it turns out right now I can actually get 8% (not counting capitalization) for USD CDs. And they are tax-free, fee-free, 100% insured and can be cashed at any time without losing already received (monthly) interest (I repeat that because I'm not sure how CDs work in the US).

livetogive

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Re: US stocks vs CDs in another country
« Reply #2 on: April 06, 2015, 11:13:01 AM »
This is the case with both investment scenarios, but your CD scenario is not risk free.  You are fully exposed to currency risk, so if the USD falls relative to the ruble your 8% can turn into -25% fairly quickly.

It is possible to get US exposure without as much currency risk by finding international ETFs or Mutual Funds that hedge.  They are almost always more expensive than traditional index funds but it might be worth the extra cost to eliminate ruble/dollar volatility.

Also re: market timing, it doesn't work.  People called the top of the market last year too and I still did pretty well in 2014.  Just keep buying whether it goes up or down and only sell when you need to re-balance.

Vecar

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Re: US stocks vs CDs in another country
« Reply #3 on: April 07, 2015, 01:43:46 AM »
Thanks for the response!

I don't much care for ETFs and funds, and I'm venturing into USD exactly to hedge the currency risk - the ruble currency that is =)
I've read some more of the forum and figured that timing is indeed not worth it - even with guaranteed 8% alternative I can miss on XX% additional grow for who knows how long.
And even if the market crashes the day after I buy in, it's most likely to be worth more than now in 20+ years when I start cashing out.

livetogive

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Re: US stocks vs CDs in another country
« Reply #4 on: April 07, 2015, 02:31:36 PM »

I don't much care for ETFs and funds, and I'm venturing into USD exactly to hedge the currency risk - the ruble currency that is =)


What you're doing is the opposite of hedging - I think it might be a language thing.  Hedging implies you are removing the other risks and isolating exposure to certain attributes of an investment.  So really you mean "...and I'm venturing into USD exactly to be un-hedged with currency risk..."  AKA you're short the ruble on purpose.

Either way, good luck!