Being simpler in investments has paid off in the last 20 years; understand – 10/30/2023 – From Grain to Grain

The weekend arrives and, at that friends or family barbecue, your cousin or friend asks: how much did your wallet earn this month? You want to say something positive, but your profitability was not good or was close to the CDI. I bet you’ve been through a similar situation. The situation gets even worse when your cousin or friend takes out his cell phone, proud, and shows how much he earned in the month. We want to change the entire portfolio on Monday. We think that investing simply means nothing. It will be?

In my work as an investment advisor, I have had to calm down several clients who arrived on Monday wanting to change everything.

We need to be very careful when observing a small window of feedback from a friend or family member. Remember what I always repeat. The risk did not cease to exist just because an investment was successful. Only the risk did not materialize during that period.

While for investors with an adequate risk profile it makes sense to seek a risk premium, for conservative investors, being risk-free can also pay off.

This is what happened when we looked at a window over the last 20 years, that is, since November 2003.

There is nothing more conservative and with a good return than a CDB at 115% of the CDI or higher when we invest within the FGC guarantee.

I say this for the conservative investor, as he tends to be anxious even when the IPCA drops and the CDB referenced to the IPCA loses from the CDI. But, I prefer this IPCA indexer.

In a CDB at 115% of the CDI, according to the mathematics itself, you will not lose the CDI.

Also, as I wrote recently, due to the power of interest compounding, after a few years, this CDB will yield more than it promises. Understand this effect with the numbers below.

Over the last 20 years, your investment in the CDB at 115% of the CDI would have appreciated by 940.94%. In the same period, an investment at 100% of the CDI appreciated by 667.13%. Therefore, due to the composition effect, the CDB at 115% of the CDI yielded 141% of the CDI, at the end of 20 years.

Almost no one realizes this long-term effect.

The graph above shows the evolution of a CDB at 115% of the CDI and several common alternatives for investors.

Who has never considered investing in American public bonds because of a tip from a friend or influencer? See that even with the effect of the dollar. They lost from the CDB to 115% of the CDI. The same happened for the S&P500 and Ibovespa.

Investment in the CDB at 115% of the CDI lost to only three common alternatives: IMAB-5, IMAB-5+ and Nasdaq (with dollar effect).

However, as the CDB at 115% of the CDI has practically no volatility, it presented the best return per risk.

Therefore, be careful when thinking about crazy formulas and complicating your portfolio. I’m not saying that it doesn’t pay to diversify and take risk. But a more conservative investor can often have excellent returns in the long term.

Michael Viriato is an investment advisor and founding partner of Investor’s House.

Speak directly to me via email.

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