Retire? When?  How? Where?

A letter from a worried reader helps show how inspired investing works, especially for those who are about to retire or already are.

Here is what this reader wrote:

“Gary, I keep receiving messages from various sources warning that the US and world economies are on the verge of economic collapse.

Debt, derivatives, and inappropriate decisions are going to crash us into a monumental depression. The arguments behind these messages sound more credible than the stories of imminent prosperity. So I feel that the odds are that they are likely to be right.

“How can I survive the coming calamity? I am retired and trying to live off the income from my investments. Your help will be appreciated.”

Here is my reply:

To live off your investments with super safe investments you must be willing to accept what the market offers at any one time for AAA rated government bonds. These are the safest investments in the world, if you do not take inflation into account. We’ll look at inflation in a moment. Today such investment yields are about 4.5%. If you have sufficient capital to live on with such investments, then by all means put as much cash as you need into these vehicles and enjoy clipping the coupons.

The rub usually comes when retired people do not have sufficient capital to live on a 4.5% return (still forgetting for the moment inflation). Then the temptation is to either increase risk or to spend capital. Either option increases danger and creates problems down the road. The better answer is either to reduce spending or increase income outside your investments with a job or with your own business activities.

Certainly using q Multi-Currency Sandwich increases risk but this tactic can be used with funds you can afford to lose.

There are many reasons why the US dollar is most likely to fall in the months ahead. First the huge federal debt (over 7 trillion) is reinforced by even larger future commitments. According to a recent article in USA Today, Social Security, Medicare and Medicaid liabilities push the debt to over 53 trillion! Future costs from added homeland security, higher energy and medical costs (50% of the population are obese) make the potential liabilities grow.

Next, the US continually has huge trade deficits. In short we keep buying more goods abroad then we sell. This forces Americans to sell dollars to pay for these goods. This excessive selling pushes the dollar down.

Here is how for the past decade my readers have cashed in on this greenback crash by taking advantage of low interest rates of the Japanese yen and Swiss franc.

Right now one can borrow yen for as little as 1.5% per annum and Swiss francs as low as 2.1%. Then the loan can be invested in other currencies for returns of 7%, 8%, 9% and even more.

This tactic is created by one of the best, longest lasting, but little know international economic distortions. The multicurrency sandwich is a tactic of borrowing a low interest currency and investing the loan in investments with returns higher than the cost of the loan.

Jyskebank Denmark’s second largest bank specializes in this strategy and they recently shared a portfolio that gives the potential to earn 30% (or more) on deposits now.

Here is this portfolio.

Invest $30,000 (or more) in a 6.25% Euro denominated Baa2 rated Ford Motor Credit bonds that mature January 2008 and currently yield 5.10%.

Use these bonds as collateral to borrow four times their value ($120,000). Borrow 50% of this loan in yen at 1.75%. Borrow 50% in Swiss francs at 2.25% (even lower rates are available on larger loans).

Invest $30,000 of the loan in AA+ rated Hungarian government bonds due in 2008 and issued in Hungarian forint yielding 7.25%.

Invest $30,000 of the loan in AAA rated Landesbank HES bonds due in 2007 and issued in New Zealand dollars yielding 7.00%

Invest $30,000 of the loan in Baa1 rated Mexican bonos due in 2008 and issued in Mexican pesos yielding 9.75%.

Invest $30,000 of the loan in AAA rated Icelandic government T notes due in 2007 and issued in Icelandic kroner yielding 9.00%.

Amount Asset Yield Annual Return
$30,000 Euro Ford 5.10% $1,530
$30,000 Hungarian Bond 7.5% $2,250
$30,000 New Zealand $ Bond 7.00% $2,100
$30,000 Mexican Bonos 9.75% $2,925
$30,000 Icelandic kroner Bond 9.00% $2,700
$60,000 Japanese yen -1.75% -$1,050
$60,000 Swiss franc -2.25% -$,1350

Total Annual Earnings $9,105

$9,105 is an annual return on the original $30,000 investment of 30.35%

This multicurrency portfolio is based on current bonds and interest rates available at the time of this writing and takes advantage of several principles. The first principle is leverage. 25.25% of the profit earned is pure, extra profit above the 5.10% interest that the original Ford bond asset earns. This works because existing assets are used as collateral. No additional cash or investment is required.

Second, the principle of positive carry means when you borrow money at 2% and earn an average return of 8.31% (the average return of the investments before leverage) you have an 6.31% margin of error (the difference between the 13.05% and 1.5%). You have this much protection from fees, defaults and forex losses and other risks.

Are there risks? Of course! Do not ignore them. You could lose your entire $30,000 investment. Bond values can drop, foreign currencies can change and interest rates can rise or fall. This is a speculative investment and you should never invest more than you can afford to lose. You should calculate the potential loss before you invest.

However look at the other benefits. There is a chance of a forex gain beyond the profit in the positive carry. The parity of the Japanese yen and Swiss franc can fall versus the currencies in the portfolio.

The next advantage is diversification into five currencies and different investments of which more than half have strong AA to AAA ratings. This reduces forex and default risk. Other than the euro and Hungarian forint, these currencies are unrelated to one another.

This tactic has worked for me (and my readers have reported great success as well) again and again. For example when I recommended taking yen loans to invest in U.S. dollar and Mexican peso CDs and bonds in the early 90s, profits exceeded 108%.

Later I saw currency markets panic. When they do logic is thrown out the window. Prices plummet in currencies that should be strong. For example in the late 90s the Korean plummeted more than 30% against the Japanese yen in a very short time. I felt that the weak won was distorted because Koreans compete against the Japanese in the export of so many products such as cars (Hyundai and Kia vs. Honda and Toyota etc.), Computers, Sony Vs. Samsung etc. The devalued won meant that Korean products suddenly became 30% cheaper than Japanese goods. My bet was that the Japanese would not tolerate this. I was paid a positive carry of 13% a year (15% interest on the won less 2% loan cost for the yen) to make the bet.

When I recommended yen loans at 2.00% invested in Korean won AAA rated bonds paying 15%, the won immediately revalued and made 43% profit in two months (plus 53% on interest differentials or 96% in the year).

In 1998 one of my recommendations was to borrow Japanese yen and invest in Japanese stocks. This idea made triple sense…first, giving global diversification and second entering Japanese markets at decade low prices. (Japan was in its tenth year of recession.)

Getting in at this bottom made more sense than staying in superinflated .coms, high tech and U.S. shares that had peaked in Wall Street’s highest and longest bubble. Third, the risk was reduced because the investment was in yen, the currency borrowed. This tactic quadrupled profits and turned an astounding 1,315.5% gain in 1999 when invested in the Warburg Pincus Japan Small Company Fund (which rose 329.7%).

I lack space to explain all the Borrow Low – Deposit High and other diversification tactics here.  Here are ways you can earn more.

You can sign up for my free ezine, which regularly reviews currency distortions and updates the multicurrency sandwich at www.garyascott.com.

Subscribe to our emailed Multi Currency portfolios course.

Attend one of our International Investing Seminars (IBEZ) below.

History suggests that people on fixed incomes almost always lose.

Plus long-term inflationary pressures certainly exist. To obtain this 4.5% return on safe investments in today’s economic circumstances you have to invest in long term investments and lock that return in for the long term. This means when interest rates rise, the capital value of those investments will fall. If prices rise (as they will if interest rates rise), the purchasing power of these investments will fall as well. So you have to have more than enough capital to have an income that is more than sufficient today to be sufficient in five, ten and fifteen years ahead.

This is why I highly recommend inspired investing which is looking beyond the numbers and turning one’s life into a process of earning income for life through some enjoyable process that serves your fellow man. The earnings do not have to be huge if you already have a fair income from your investments. If the activity is fun, then it will not seem to be like work and whatever service you provide, its value will most likely rise with inflation.

This inspired approach to investing helps solidify the worth of your capital and keeps life interesting. When one stops taking on challenges it is easy to get in a rut and a rut is nothing but a grave with the ends kicked out!

Most important do what you love. Look for ways to serve mankind. Do this and your wealth will always be inspired.

The greatest asset for diversification is the ability to earn wherever you live and to keep your investments safe.

This is why we offer our course Tangled Web… How to Have an Internet Business.

A clear mind and healthy body are also a vital assets… plus a second language is a powerful diversification tool.

This is why I am willing to pay you $300 to attend either our Ecuador Super Thinking plus Spanish seminar in September or our North Carolina International Business & Investing seminar in October.  Sign up for either seminar and I will email you our Tangled Web… How to Have an Internet Business Course (offered at $299) free plus I’ll knock an extra dollar off your seminar fee…. to round up the $300 savings.

See details of the two seminars below.

Here is Thomas Fischer talking with seminar delegates at a recent international investing course that I co hosted with Jyske Global Asset Management.

retire-in-ecuador

Join Merri, Thomas Fischer of JGAM, our webmaster David Cross and me in North Carolina this October and enroll in our emailed course on how to have a web business free.  Save $300.

Learn more about global investing, how to have an international business and diversification in Ecuador at the seminar.

Oct. 9-11 IBEZ North Carolina

Or join us in Ecuador and learn more about living and retiring in Ecuador.

Learn more about how to earn with Ecuador exports.

retire-in-ecuador

Seminar delegates visiting Otavalo market looking for Ecuador export ideas.

Sept. 17-21 Ecuador Spanish Course
Sept. 23-24 Imbabura Real Estate Tour
Sept. 25-28 Ecuador Coastal Real Estate Tour

Oct. 21-24 Ecuador Import Export Tour

Nov. 6-8 IBEZ Ecuador Seminar
Nov. 9-10 Imbabura Real Estate Tour
Nov. 11-14 Ecuador Coastal Real Estate Tour

Attend any two Ecuador seminar or tours in a calendar month…$949 for one.  $1,349 for two.

Attend any three Ecuador courses or tours in a calendar month…$1,199 for one.  $1,799 for two.