São Paulo is not prepared for storms, but are you ready for investment storms? Part-I – 11/05/2023 – From Grain to Grain

The storm that occurred last Friday in São Paulo left several people in São Paulo without electricity and other problems for a few days. Although events as intense as this do not occur every year in the city of São Paulo, criticisms arose that the city was not prepared for them. Investment storms occur much more frequently, but are you prepared for them?

Today, I received two emails that caught my attention and I remembered the association with the storm that occurred here in São Paulo.

I will not mention the names, nor the entire content of the messages so as not to identify them. I will call the two readers AD and RS, respectively.

In the first, AD explains that he invested in products referenced to the IPCA in August and September of this year, but with the negative result in these two months, he exited the investments at the beginning of October. After my article yesterday, he asked me if it was time to go back to the same application to recover the loss he had.

Just like Mr. AD, many investors are not prepared to withstand volatility in investments. Even in fixed income, when marked to market, there can be a lot of volatility.

Unfortunately, turmoil in the financial market occurs with greater frequency and intensity than the storms in São Paulo and than many imagine.

Many want to know the right time to enter, so that there is no risk of experiencing these turbulences. Contrary to reasonable weather forecasting capabilities, it is not possible to predict investment turbulence. Unfortunately, anyone who says they are able to predict these situations in the financial market is either lying or deluded.

Therefore, I do not recommend that Mr. AD return to the same application, as there is always a risk that he will experience the same volatility and end up redeeming at an even greater loss.

The suggestion I give to AD and investors who do not have the ability to withstand volatility is:
Understand your investor profile better and if you are more conservative, avoid marked-to-market products, even fixed income ones. Look for applications marked on the acquisition curve.

For example, AD can take advantage of higher real interest rates by investing in IPCA-referenced bonds marked on the curve or acquisition rate. For example, products issued by banks, such as CDBs, are not marked to market. This way, it will not suffer from market volatility, it will take advantage of the gains in these higher interest rates and will protect itself from the fall in the Selic rate.

Therefore, you will have the same benefits as the marked-to-market product you invested in, but without suffering from market fluctuations.

But what if you don’t know if you have the ability to withstand market volatility because you’ve never experienced it?

This is the case with the RS reader and it could be yours.

RS has a very interesting case, as he is retired, has a high net worth and questions what would be the best way to live on income. Depending on the method chosen, he will have to make tough decisions to get rid of part of his assets.

I will explain RS’s situation and answer his question in the next article so I won’t go on too long now. His case deserves more attention for the details. Stay tuned for the next article (Part II) to understand this case and how it can apply to you.

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

Speak directly to me via email.

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