Swallow capital is not only risky, but it is also detrimental to the overall economy. It is for this reason that today we will explain the nature of these investments and how to avoid them.

Swallow Capitals: What Are They and Why Are They a Problem?

Basically, they are fleeting monies that enter a country taking advantage of conjunctures and then leave. Usually, these types of investors take advantage of certain moments in the economy: a devaluation of the local currency, shares of cheap companies, volatilities, etc.

So why do they pose a risk to the economy? Simple: the purpose of investments is to generate development. A company that collects money from investors will use it to improve its productivity, create more jobs, be more competitive, etc. However, with this capital, that money does not flow and that development is lost. Now, the real problem comes with volatility.

When foreign currency or investments enter a country, the price of those assets tends to rise. It’s no different with swallow capital . The difference is that, because they are so momentary, the turbulence created is far more damaging than the gain itself. That complicates impact investing and doesn’t give the country or the locals enough time to generate value with that money.

Now, in the case of real estate, it not only produces economic instability, but also generates devaluation in housing. This is because as it sells faster and cheaper, the price/potential ratio decreases and forces the market to lower its prices.

How can we not fall into the game of swallow capital?

The reality is that these investors come and go because they are looking for temporary market opportunities. However, according to expert investor Jaime Alonso Stuyck cited by Forbes (2022), historically the best returns come in the long term.

The problem is that few people accept the wait and panic on gray days. Therefore, so that you don’t fall into that game, you can do the following:

1. Create an investment plan

An investment plan with defined objectives and budgets will give you the peace of mind to act in adverse situations.

Swallow capital investors don’t have a plan; They put money somewhere, wait a couple of days, and then leave. On the contrary, with an investment plan you will have the roadmap to follow and small momentary devaluations will not scare you.

2. Diversify your portfolio

The reality is that it can’t predict market movements. However, to reduce the risk of loss there is diversification. That is, investing in several assets at the same time.

These should be different enough from each other. In this way, if one investment suffers, the others will raise their portfolio. Buying homes in the United States is an excellent diversification alternative and has historically proven security.

3. Invest in stable territories

Just as you can diversify into assets, you can also diversify into territories or currencies. Buying a home in Colombia is very different from buying a home in the United States, as the latter has a robust financial system with more financing options. Not to mention political stability.

In addition, investing in dollars will give you an exchange guarantee when your country’s currency is devalued. These are things that swallow capital does not enjoy.

4. Study your industry

You don’t necessarily have to be an expert on the subject to invest, but at least you need to get advice from one. Understanding the market could help you know the amount needed, the potential, and the time it will take to recoup your investment. In the real estate market, for example, if you understand your location, you’ve already done half the homework.

Why is the real estate sector not for swallow capital?

Florida’s real estate sector, specifically, has been stable and profitable for years. Precisely, in the absence of great volatilities, there is not much presence of swallow capital. That’s very good for Florida and for the investor because it means that investment there generates real development.

In addition, ephemeral investments are not worth it in this sector. This is because a house must wait for the appreciation of the land, the social development of each city, among other things. For this reason, investing in real estate for the long term is not only profitable for you, but for the state as well.

The invitation is not to fall into the game of opportunistic capital, as these are extremely risky. In addition, according to Nobel laureate in economics Richard Thaler cited by Forbes (2022), all crises are temporary. In other words, we have no idea what can happen in five minutes, but we can trust that in the long run things will eventually work out.

If you want to invest in houses for sale in Miami, in a stable and dynamic sector in the long term and look for sustained returns over time, real estate in Florida is a great option. At PFS Realty we are experts in the field. If that interests you, don’t hesitate to contact us.

References

Forbes. (2022). How to invest for the long term (and make it profitable). https://forbes.es/forbes-funds/173687/como-invertir-a-largo-plazo-y-que-sea-rentable/

Forbes. (2022). Nobel laureate economist Richard Thaler explains why he doesn’t see a real recession. https://forbes.co/2022/08/30/economia-y-finanzas/el-nobel-de-economia-richard-thaler-explica-por-que-no-ve-una-verdadera-recesion/