Raghuram Rajan, former economic counsellor and director of research at the International Monetary Fund, is considering a high-risk bet on undervalued Spanish stocks, arguing that the eurozone crisis is opening up new opportunities.
Rajan, who is professor of finance at the University of Chicago’s Booth School of Business, was one of the few economists to have warned of the 2008 global economic crisis, suggesting in 2005 that banks were taking too many risks.
Rajan was born in Bhopal, India. After graduating from the Indian Institute of Technology in Delhi, he completed an MBA at the Indian Institute of Management in Ahmedabad.
In 1987, he won a scholarship to complete a doctorate at the Massachusetts Institute of Technology. He was chief economist at the IMF between 2003 and 2006 and is currently president of the American Finance Association and a member of the American Academy of Arts & Sciences. He is also an economic adviser to the Indian government.
His books include Saving Capitalism from the Capitalists, and Fault Lines: How Hidden Fractures Still Threaten the World Economy. The latter won the 2010 Financial Times and Goldman Sachs Business Book of the Year Award.
Advertisement
Rajan, 49, lives in Chicago with Radhika, his wife, and their children, Tara, 18, and Akhil, 13.
How much money do you have in your wallet?
About $50 (£32). I use cards whenever I can.
What credit cards do you use?
I have an American Express card, which is good for use abroad as it does not levy high charges for overseas purchases. Most of the other cards I use charge about 2% for non-dollar transactions. [The UK-issued American Express Platinum card charges a 2.99% foreign currency conversion fee. The Halifax Clarity credit card has no overseas usage fee]. I also have a Discover card [available only in America], which regularly has special offers. It is currently offering 2% cashback on petrol.
Are you a saver or a spender?
A saver. I set aside anything that is left over each month into cash deposit accounts. The returns are miserable, as they are in most countries. Luckily, inflation in the US is not as high as in Britain, so it is easier to make a real return [the US consumer prices index stands at 2.3%, compared with 3% in Britain].
How much did you earn last year?
I have a typical professor’s salary in America — a six-figure sum.
Advertisement
Have you ever been really hard up?
Not really. As a student living in America, I didn’t have a large amount of spare cash, but I wouldn’t say I was hard up.
Do you own a property?
I own a three-bedroom flat near the university in Chicago with some good views of the city. We bought it a couple of years ago. It’s hard to say what it is worth now, although very little has sold in the area recently. House prices in the US have stabilised and in some areas, such as New York, they are rising. Real estate investment in America is certainly worth looking into. Indicators such as home affordability are at an all-time high. If you can borrow to finance your home, even better, because interest rates on home loans are at record lows.
What was your first ever job?
A summer job at Citibank in India when I was 22. I was paid the equivalent of about $50 a month.
What has been your most lucrative work and did you buy anything special with the money?
I bought Ford shares after the 2008 crash. Since then, the price has risen fivefold. I plan to hold them long term.
Are you better off than your parents?
Almost certainly. My father was a civil servant in India and my mother was a housewife.
Advertisement
Do you invest in shares?
Yes. I invest using platforms such as Vanguard, T Rowe Price or Scudder. American investments account for about 70% of my portfolio. Another 25% is in Asia and Latin America and the rest is in a combination of European, African and Middle Eastern funds. I do invest in individual shares, on occasion, when prices fall sharply, as with Ford. I also bought Google just after the 2008 crisis [up 102% since its 2008 low]. I also hold some US Treasuries and corporate bond funds.
Are you taking steps to protect your portfolio from the eurozone crisis?
I am investing away from the eurozone. I have some direct exposure — not more than about 1.5%. It’s very hard to avoid indirect exposure to Europe because many funds that invest in large multinational companies rely to some degree on European demand. I am also dipping into Sub-Saharan Africa. African growth is interesting. There are the big telecom and banking firms moving into Africa. I invest via low-cost global tracker funds that have exposure to Africa, such as the T Rowe Price Africa & Middle East fund.
Would you buy cheap European stocks?
Some of the larger European companies may be unduly depressed because of news about Europe. Many have less exposure to Europe than people generally think. For example, the Spanish bank Santander [share price down 6.5% last week] is as much a play on Latin America as it is on Spain. It is a similar story for BBVA, another Spanish bank. There are some attractive manufacturers in Europe as well. A weakening of the euro, because of the crisis, is helping these companies as their goods become cheaper for overseas buyers.
What’s better for retirement — property or pension?
Pension — especially if you are able to get into a defined benefit scheme. I still have one from my work at the IMF. I also have a university scheme, to which I contribute regularly.
What’s been your best investment?
Continuing to study after my MBA. Doing my doctorate was enjoyable and also opened doors.
Advertisement
What about the worst?
My investment in gold. I was looking at the price rising after the 2008 crisis, but bought only when it was about 10% off its peak [in August 2011 when it hit $1,895 an ounce]. It then fell about 20% from its peak in about four months.
What’s the most extravagant thing you have ever bought?
Several expensive holidays with the family. We recently stayed in a hotel near the Iguazu Falls in Argentina.
What is your money weakness?
I am too sensible to have a money weakness.
What aspect of the tax system would you change?
Government should be prepared to take some measures to boost growth — but only if confidence returns.
What is your financial priority?
Saving to have a reasonable retirement.
Advertisement
What is the most important lesson you have learnt about money?
If you can reduce your dependence on it, you’re better off.