For many international professionals, the Peruvian Sol (PEN) has little or no relevance to their long-term future. With the constant uncertainty and economic volatility in the region, the accumulation of assets in PEN, either intentionally or unintentionally (via plans such as the AFP) can present a significant and unnecessary risk to your personal wealth. The following guidelines are designed to help you to mitigate this risk:
1) Consolidate core assets in a global currency:
Latin America has a long history of political uncertainty, currency volatility and periods of high inflation. Therefore, it is generally recommended that international professionals hold a large proportion of their financial assets outside of Latin America in a stable global currency such as the USD.
2) Set-up regular automated savings to your chosen global currency:
Currency movements are notoriously difficult to predict from one day to another. Setting up automatic regular monthly savings is the best way to steadily transition local currency to your chosen global currency (eg USD). You will likely pass through moments of both high and low exchange rates but the regularity and automation of the process will average out the exchange rate over time.
3) Keep only short term savings in local currency:
It is generally recommended that only your emergency fund and any short term savings that are intended to be spent in Peru are retained in PEN.
4) Look at the bigger picture:
Consider your total exposure to Peru, not just the money you hold in the bank. If you own property in Peru or you are employed in Peru then you already have significant exposure to the country and its currency. In this situation you should consider placing a larger proportion of your financial assets in a more stable currency and jurisdiction.
5) Sit on the fence:
If in doubt, hedge your bets and keep 50% of your assets in Peru/PEN and 50% elsewhere in a more stable global currency.
6) Think about the future:
As an international professional, are you looking to move to another position in another country after Peru? Are you looking to return to your home country in the medium to long term? It is important to retain flexibility by holding your savings and investments in a stable currency that will be relevant, wherever you go in the future. It is also important to ensure that your bank or investment accounts are easily portable and accessible in any global location, including your home country.
These guidelines are not designed to speculate on the short-term value of the Peruvian Sol but rather to ensure that your long term wealth is protected against unnecessary risks.
We do not know what the future holds for Peru but we do know that taking these simple steps will put your finances on a more stable foundation. More importantly it will alleviate the stress you may feel regarding your personal finances, allowing you to concentrate on other important parts of your life.
It is important to acknowledge that every single person is different and so there is not one correct answer for everyone. The correct strategy for you should be viewed in the context of your own personal circumstances.
EBG International will be happy to discuss your personal strategy with you in greater detail. Please contact us to arrange a personal review meeting.