Think You’re a Savvy Investor?

So, you think you’re a pretty savvy investor. Your 401k, IRA, or personal investments have kept up with the S&P 500 averages during the past seven years and you’re up about 10% during that timeframe. Well, congratulations BUT, did you realize that the Mexican Exchange Traded Fund (EWW) which represents the Mexican stock market, advanced by almost 300%, or more than thirty times as much during the past seven years? Please refer to the graph below in order to appreciate the explosive growth pattern that Mexico has experienced, especially during the last three years.

One of the most significant reasons for this steady and rapid growth in Mexico must be attributed to the policies of the new governing party that has been in control since 2000. Mexico has been governed by Harvard alumni during the timeframe shown above and will continue under the same leadership for at least another five years. The PAN party, led first by President Fox and currently by President Calderon, both Harvard graduates, has brought Mexico from a Third World Country to a Newly Industrialized Country standing in a matter of seven short years. Among their numerous accomplishments, they have cracked down on corruption, have promoted free market capitalism while maintaining a firm peso/dollar relationship, and have elevated tourism to the top of their list of strategic objectives.

We have lived in Puerto Vallarta for ten years and have witnessed the changes and growth firsthand. As the economy has boomed, unemployment in Vallarta has been virtually eradicated while the population has almost doubled, prices for materials, labor, and land have tripled, and of course, real estate prices have also tripled. Now, let’s compare this growth and real estate appreciation to what has been seen in the central portion of the US, where at least half the population resides. The chart below from the Office of Federal Housing Enterprise Oversight shows that in the Central Area (four zones), the average appreciation in purchase price was 25.5% for 1996 to 2001 and another 32.1% from 2001 to 2007, or 66% compounded through the eleven year period and therefore we estimate about 40% through the past seven years, i.e., real estate has performed much better than the stock market during the past seven years.

With the US real estate market currently experiencing a slump, no real appreciation in housing values is expected for at least two more years. In summarizing, most Americans have enjoyed roughly a 40% gain in their property value over the past seven years and can expect the equity in their residence to essentially be dead money for the next couple of years. When we compare the above data to what we’ve experienced in Vallarta, where real estate values have tripled during the past decade, we can only thank our lucky stars for letting us be among the first to enjoy the ongoing land rush in Paradise! Fortunately for the about-to-retire baby boomers, it’s not too late. There is currently no slump or softness in the Vallarta real estate market nor is any projected for the foreseeable future. To the contrary, the ten year building plan for the greater Vallarta area calls for about a 50% growth during the next decade and property prices are expected to double again during that time period.

Aside from the fact that we have seven months of winter weather in PV from November through May where the average temperature is 73* with virtually no rain and blue skies, we have seven magnificent golf courses, hundreds of tennis courts, world class deep sea fishing, many five star restaurants, clean food and water, and 50,000 other gringos to play and party with, our portfolios of stock and real estate investments are “en fuego”!

If you’re recently retired or considering retirement in the near future and you’re the savvy investor that you think you are, you really ought to check out the opportunities that lie south of the border, enjoy your retirement to its ultimate, and put your dead money to work for you in Paradise.