A job as an Ecuadorian policeman looks good… but not the pay.
One wonderful part of living in Ecuador is the low cost of living. However, this also means that Ecuador wage levels are low. Most Americans and Canadians I know, who have moved to Ecuador, have a higher standard of living than most Ecuadorians.
In short… most North Americans probably will not want to be an employee in Ecuador…also the government tends to like Ecuadorians rather than other nationalities to be employed.
Ecuador is a land of small businesses.
This is especially true of those collecting Social Security. Employment abroad can reduce the income a US recipient is entitled to. If you plan to work or have a business abroad… consult with a tax US attorney. See more about this at Ecuador & Social Security.
You do not want to depend on Ecuador Social Security.
This leaves North Americans with three ways to expand income potential in Ecuador… or actually anywhere they live.
The first way to have more income in Ecuador or anywhere is to earn more from your investments.
The world is currently in the grasp of a major global bear stock market.
During bull markets and recoveries, stock markets almost everywhere can provide incredible returns. For example I work with Denmark ’s second largest bank. They are global equity experts and one of the portfolios (the Green Environment Portfolio) we created together rose 266.3% in one year. Another (The Emerging Market Portfolio) rose 114.2% in 2006 and 122.6% in 2007.
Yet in each case these portfolios also encountered gut wretching drops during the 2008 bear market. That Green Portfolio for example dropped 103.22% in one month.
Markets everywhere are depressed and are likely to see another big and sudden drop in the next few months. Since March, stock markets have been rising without reason.
This is good to know because if a recovery comes, history suggests it will be sudden and dramatic and strong.
The next stock market dive will create opportunity for some investors to make fortunes.
Here is a simple idea that can help you become a good global investor, a whiz at international investing. The idea is that these three simple facts can help you spot distortions in equity markets.
The first fact was confirmed by Alan Greenspan in his excellent book, “Age of Turbulence”.
“A major aspect of human nature-the level of human intelligence-has a great deal to do with how successful we are in gaining the sustenance for survival. As I point out at the end of this book, in economies with cutting-edge technologies, people, on average, seem unable to increase their output per hour at better than 3% percent a year over a protracted period. That is apparently the maximum rate at which human innovation can move standards of living forward. We are apparently not smarter to do better.”
That’s a huge fact. Overall we should expect the global economy to grow at about 3%.
This gives us a baseline for how much an investment should grow.
If an economy rises faster than 3%, it is distorted. During early stages of excessive growth, investors will be attracted. Shares will rise faster.
If the economy remains robust, shares become overbought. Then watch out! A correction will come.
This leads us to the next fact which is “all investments have risk”.
Rather than wasting time trying to avoid risk…which cannot be done, investors should look at three risk elements instead.
#1: How much risk is there in any particular investment?
#2: What perceptions doe the market have of the risk?
#3: What risk premium is due?
Bank accounts and government bonds, for example, are perceived as the safest investments (especially if government guaranteed). A look at their long term history shows that they pay about 3%. So if a bank account or government bond pays less…in the long term it’s bad. If it pays more…that’s better. Yet the idea is that bank accounts will not really make money. They will just keep up with growth…at 3%.
To get real growth requires taking risk. If an investment appears to be less safe it will pay more than 3%. This is called a risk premium.
Bonds pay more than bank accounts because they are perceived to be less safe. Stocks pay more than bonds because they are perceived even riskier. Emerging market stocks pay more than major market stocks. Emerging market bonds pay more than major markets bonds.
Over the long run, bonds issued in countries and currencies perceived to be stable pay 5% to 7%.
Stocks in major countries should pay 7% to 10% annual return in the stock market as a function of global growth, long term earnings growth plus risk premium (above bank accounts and bonds).
To attain higher growth than 7 to 10% investors must either increase risk, trust luck or spot distortions.
This is good because the market is almost always wrong. Most investors always try to avoid risk. Most investors dump their wealth into investments that are perceived to be safe. This creates excessive demand and lowers value and actually makes the perception wrong.
Knowing this helps wise investors spot trends created by distortions.
Finally we come to the third fact. Periods of high performance are followed by times of poor performance… and vice versa.
In times of global panic as we have recently seen, all markets tend to drop.
Understanding these three facts leads us to know that a portfolio of global shares.
Understanding the 3% solution and what markets have done shows a distortion. Blue chips may be a good way to invest now for higher than normal returns… in the long term.
Global investing has proven itself to be more profitable. Why not? Modern communications and transport coupled with a vast pool of low cost labor almost guarantees this fact. Knowing three more facts based on the 3% solution can give you an edge when it comes to taking advantage of the ups and downs in this global trend.
Equities now provide potential for decent prospective returns from current
levels over the next 5 or 10 years.
Many investors are now putting risk back on the table.
In the US Money Market Funds now have more cash than all the equities in equity funds. This is something that markets have never seen before!
The current bear market bull was created when billions of dollars of this liquidity began flowing back into stock markets.
The pent-up liquidity is earning really low returns and as inflation increases its bite, this cash has to go somewhere. Equities are one of the logical choices.
For protection against future inflation, real estate and shares are the norm, plus
index-linked and gold royalty investments make sense.
Franco Nevada for example has 1% dividend yield plus growth from the reinvestment of the cash flows. Franco-Nevada Corporation (TSX:FNV) is a gold focused royalty company with additional interests in platinum metals, oil & gas and other assets.
My portfolio adviser recently sent me this note:
Gary, I have been keen on thematic investing globally.
The sectors/themes that I favor for the continued recovery in markets
are Food, Telecoms, Power Generation, New Energy, Healthcare, Gold &
Silver, Water and Infrastructure. A sample of some of the
companies/Funds that might be used to put into place such a strategy
India Pharma Fund
Black Rock New Energy Trust
Geiger Counter Fund
Kotak Indian Infrastructure Fund
Building this type of global, diversified portfolio makes sense when the market stumbles again… as it is likely to do soon.
Buying into this proposition increases risk… that history suggests will be well rewarded.
We’ll share the next two ways to increase income potential in Ecuador or anywhere in our next two messages.
One way to earn in Ecuador is to export its…
many colorful crafts, textiles and products.
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