Do you know this country? Probably not, and neither did I, but this didn't stop me from investing in it and losing 100% of my investment.
The happy country there is Venezuela; the year is 2017.
This is the story of how I lost $6,000 chasing the Yield.
Even if this is not the most popular type of investment among retail investors, bonds are a pretty reliable way to make money.
Corporate bonds are my first choice if I want to have some good returns, but I buy some sovereign ones from time to time.
Sovereign bonds are guaranteed by a country; in the US, we can call it T-bill or Treasury; in Italy are BOT of BTP, and so on. Every country needs to sell bonds to raise money, and Venezuela was, of course, one of them. When you invest in such a product, you need to ask yourself: can this country default?
That's the one and only worry you need to have.
Full of hope and excited about the high Yield, I jumped on board and bought $6,000 worth of
🔸Venezuela, 12.750% 23aug2022, USD - USP17625AC16
At the time, it was trading at a discount, so the actual YTM was something around 18% 🤑
What can go wrong, right?
In the end, all countries have high debt, but they keep paying it... also Venezuela is the #1 country by oil reserves; how can they fail with all that oil.
Well, I was wrong.
In November 2017, Venezuela defaulted (I will not enter into the details now, as it's unimportant), and as a result, my investment went to zero.
Yes, that happens when a country default... all bondholders remain empty-handed.
I consider this my worst investment, not because of the loss (6k is not that big) but because it is one of the few where I lost all the capital.
When you can lose all your capital, it means you are not investing; you are gambling.
At least I was able to get something out of this experience:
The return of an investment ALWAYS matters. There is a reason why you get paid more, and it's because you risk your money.
Sometimes you don't even realize that risk is there, but if you get 12%-15%-18%-20% return, believe me, the risk is there.
PS: Just as a reminder, people are still "stacking stable coins" for up to 18% return, believing it is risk-free...
PS2: I know that the conditions of people living in Venezuela right back in 2017 but also now are far from ideal, and they have much bigger problems than my $6k loss. I don't want to disrespect them with my post; bankruptcy, Hyperinflation, Devaluation, and Dictatorship are not jokes.