New lazy-investor from Turkey looking to hedge against Turkish Lira

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Topic Author
seigardreight
Posts: 6
Joined: Fri Jul 23, 2021 7:32 pm

New lazy-investor from Turkey looking to hedge against Turkish Lira

Post by seigardreight »

Country of Residence: Turkey
International Lifestyle: Possibility to move to EU permanently or temporarily

Currency: USD, EUR and TRY

Emergency funds: 6 months

Debt: No debt

Age: 27

Desired Asset allocation: Not sure but something like 40% Real estate property, %35 Stocks, %10 Cash (USD or EUR), 5% Cash (TRY), 10% Crypto. However I have no idea if this is in line with what I want (growth and hedge against TRY)
Desired allocation to stocks outside your of country of residence: 100%, I do not want to invest into any stocks in Turkey. I have enough exposure to TRY via real estate.

Current portfolio: 70% Real estate, 5% Crypto, 25% TRY savings accounts. Roughly around 3-4m TRY (350k-450k USD)

My main goal is to hedge against an unstable country therefore I'm willing to shrink my real estate investments down to 40% in the short term and perhaps down to 30% in the long run. I also want to drain all of the money out of my TRY savings accounts into other investments until there's just enough cash left for daily liquidity needs. I'll be doing this via dollar cost averaging through Interactive Brokers for stocks. Once the TRY reserves are done with, I will continue DCAing via a portion of my work income, however I will be less aggressive with the investments at this stage. I will also be DCAing crypto however I see it's irrelevant to this sub, but just to give an idea I'm going for safer bets (BTC/ETH) with a small part of my portfolio.
I don't necessarily depend on a retirement fund for my older age due to the real estate investments I already have however I'm also not looking into something short term. I would like a balanced portfolio that I could be able to cash out in the next 10 years, but if I see that it's doing good and the compound growth is getting better, I would also like to be able to leave it as it is to cash out later. So perhaps mid to long term would describe it best.

I was thinking perhaps going 85% VT and 15% some bonds would be a good way to go about this however I would much rather hear some recommendations from more experienced people as I have never invested in stocks before and my IBKR account will allow me to do so this Monday so I'm very excited.
Looking forward to your input, thanks a lot in advance!
bhough
Posts: 259
Joined: Wed Feb 15, 2017 5:53 pm

Re: New lazy-investor from Turkey looking to hedge against Turkish Lira

Post by bhough »

I hate to answer a question with a question, but I've been reading about Turkey recently as I bought a small amount of Turkish sovereign bonds (denominated in US currency) and therefore have been following with interest Erdogan's reluctance to raise interest rates like his bankers' told him to do. I think his reasoning was that he wanted the grow the economy, but 17% inflation is not sustainable. This relates to my investment as it is becoming harder for the government to pay those bonds as they need more Turkish Lira to buy dollars for interest payments on that debt. From what I can tell, the country was still running a deficit in 2020 (tax revenue 1 Trillion Lira, budgeted expenses 1.2 Trillion Lira), but the central bank overnight rate was 19%, so maybe that will start to bring down inflationary expectations?

In general (and specifically with German hyperinflation during the period between WWI and WWII), the group that did worst with hyperinflation were those that lent money and the group that did best were those with hard assets like real estate, especially the farmers.

What if instead of moving your assets to the EU or US to buy foreign stocks/bonds, you make use of your local knowledge and buy desirable farmland in Turkey? I certainly wouldn't purchase real estate that is partially owned like condos, but full ownership of farmland that grows crops and therefore sustains itself will rise with inflation, regardless of the rate.

b
Last edited by bhough on Fri Jul 23, 2021 9:53 pm, edited 1 time in total.
Topic Author
seigardreight
Posts: 6
Joined: Fri Jul 23, 2021 7:32 pm

Re: New lazy-investor from Turkey looking to hedge against Turkish Lira

Post by seigardreight »

bhough wrote: Fri Jul 23, 2021 9:13 pm I hate to answer a question with a question, but I've been reading about Turkey recently as I bought a small amount of Turkish sovereign bonds (denominated in US currency) and therefore have been following with interest Erdogan's reluctant to raise interest rates like his bankers' told him to do. I think his reasoning was that he wanted the grow the economy, but 17% inflation is not sustainable. This relates to my investment as it is becoming harder for the government to pay those bonds as they need more Turkish Lira to buy dollars for interest payments on that debt.

In general (and specifically with German hyperinflation during the period between WWI and WWII), the group that did worst with hyperinflation were those that lent money and the group that did best were those with hard assets like real estate, especially the farmers.

What if instead of moving your assets to the EU or US to guy foreign stocks/bonds, you make use of your local knowledge and buy desirable farmland. I certainly wouldn't purchase real estate that is partially owned like condos, but full ownership of farmland that grows crops that are purchase and therefore sustains itself will rise with inflation, regardless of the rate.

I also think a great play would be to buy Turkish sovereign debt denominated in Turkish Lira the day before the central bank and Erdogan finally give up and raise the interest rate. It will be a painful few years (see the US immediately post-Volker), but if the government honors those debts, a 17% return for 10-15 years in a currrency that is rising against foreign currency instead of declining would be a great play. You may have better information about that paradigm change than most others, even in Wall St. if you live there and read the local papers,..

Just my two cents. Interested in your response.
b
Thanks a lot for the input. I think it would definitely be a good investment to buy farmland in Turkey however my reluctance would only be due to its management. The real estate I have currently already requires me to deal with a lot of local issues and adding onto that a whole new sector I don't understand that's in another part of the country could prove to be a very challenging task. Also I might at some point leave for EU temporarily or permanently and management of a farmland remotely seems much harder than of apartments that I have right now.

However to reinforce what you said, I have recently heard from several people making insane returns on just buying farmlands and producing certain crops. It seems to be a growing trend among people living in larger cities in Turkey with enough capital, investing towards less developed cities in order to grow produce and sell, so perhaps there are some middlemen companies making the management somewhat easier. Also what you've mentioned about having more info about local paradigm changes makes a lot of sense so perhaps moving all assets away from Turkey actually takes away some of my power as well. Hedging locally does seem like a good thing to do but from what I understand, trust in the government would play a big part in that and unfortunately I have none of that.

I will go ahead and do a bit of research on farmland management and Turkish sovereign debt, not entirely sure how much the latter relies on government compliance so will try to figure that out. you've given me plenty to think over, thanks!
bhough
Posts: 259
Joined: Wed Feb 15, 2017 5:53 pm

Re: New lazy-investor from Turkey looking to hedge against Turkish Lira

Post by bhough »

After I posted, I looked up the current bonds issued from the central bank. It appears that government debt issued in Lira is getting a coupon for less than 10%. (see: https://en.hmb.gov.tr/debt-office-statistics ) which would not be wise if the overnight rate from the central bank is 19%, unless you can purchase that debt at a deep discount (if you can buy with an expected yield of 30%, then your real return is 30%-19%=11% which is a great real return) on the secondary market. I cannot find the secondary market for Turkish debt denominated in Lira's, but perhaps you can.

Good luck!!
b
Topic Author
seigardreight
Posts: 6
Joined: Fri Jul 23, 2021 7:32 pm

Re: New lazy-investor from Turkey looking to hedge against Turkish Lira

Post by seigardreight »

bhough wrote: Fri Jul 23, 2021 9:57 pm After I posted, I looked up the current bonds issued from the central bank. It appears that government debt issued in Lira is getting a coupon for less than 10%. (see: https://en.hmb.gov.tr/debt-office-statistics ) which would not be wise if the overnight rate from the central bank is 19%, unless you can purchase that debt at a deep discount (if you can buy with an expected yield of 30%, then your real return is 30%-19%=11% which is a great real return) on the secondary market. I cannot find the secondary market for Turkish debt denominated in Lira's, but perhaps you can.

Good luck!!
b
That's great to know, thanks for looking into that!
Topic Author
seigardreight
Posts: 6
Joined: Fri Jul 23, 2021 7:32 pm

Re: New lazy-investor from Turkey looking to hedge against Turkish Lira

Post by seigardreight »

I'm still looking for some Ireland domiciled ETFs (acc) for total market and bonds, so please let me know if you have any suggestions.
oogZoo
Posts: 102
Joined: Mon Sep 02, 2019 12:05 pm

Re: New lazy-investor from Turkey looking to hedge against Turkish Lira

Post by oogZoo »

seigardreight wrote: Sun Jul 25, 2021 8:13 am I'm still looking for some Ireland domiciled ETFs (acc) for total market and bonds, so please let me know if you have any suggestions.
Something wrong with the suggestions in the wiki?

https://www.bogleheads.org/wiki/EU_investing
https://www.bogleheads.org/wiki/Simple_ ... portfolios
https://www.bogleheads.org/wiki/Outline ... _domiciles
SouthernInvestor
Posts: 113
Joined: Thu Jul 15, 2021 6:13 am

Re: New lazy-investor from Turkey looking to hedge against Turkish Lira

Post by SouthernInvestor »

a bit off topic, but I really like Turkcell TKC.
Topic Author
seigardreight
Posts: 6
Joined: Fri Jul 23, 2021 7:32 pm

Re: New lazy-investor from Turkey looking to hedge against Turkish Lira

Post by seigardreight »

oogZoo wrote: Sun Jul 25, 2021 10:48 am
seigardreight wrote: Sun Jul 25, 2021 8:13 am I'm still looking for some Ireland domiciled ETFs (acc) for total market and bonds, so please let me know if you have any suggestions.
Something wrong with the suggestions in the wiki?

https://www.bogleheads.org/wiki/EU_investing
https://www.bogleheads.org/wiki/Simple_ ... portfolios
https://www.bogleheads.org/wiki/Outline ... _domiciles
I must have completely missed these while looking at US related pages, thanks!
Topic Author
seigardreight
Posts: 6
Joined: Fri Jul 23, 2021 7:32 pm

Re: New lazy-investor from Turkey looking to hedge against Turkish Lira

Post by seigardreight »

SouthernInvestor wrote: Sun Jul 25, 2021 10:50 am a bit off topic, but I really like Turkcell TKC.
It's one of the monopolies in Turkey. So long as the current government goes on, companies like Turkcell will devour the local market and grow however the risk I see in them is in a possible government change, they will have to comply and even possibly face fines as corruption is unearthed.
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