Today's comment is from Mark Nestmann, The Sovereign Society's Wealth Preservation & International Tax Editor and President of The Nestmann Group.
Dear A-Letter Reader,
For nearly a decade, The Sovereign Society has been in the forefront of educating investors, especially those from the U.S., as to the many investment opportunities available beyond their native borders.
But if you're new to offshore investment, you may not know all the advantages of creating an offshore "nest egg."
1. Profit opportunities are an advantage that The Sovereign Society has highlighted again and again. The United States has the world's largest securities markets, but there are many more investment options internationally. But too often, U.S. investors have missed the action, because a wall of censorship separates the U.S. from the offshore investment world. For instance, out of more than 55,000 mutual funds in the world, only 7,000 are registered to trade in U.S. markets. Yet, it's illegal for a U.S. broker to even tell you these funds exist!
There's more opportunity offshore too, such as in eastern and central Europe, Southeast Asia and parts of South America and Africa. You can buy U.S. securities targeting these markets, but you'll find a much richer selection offshore. And you don't have to bet on stocks to make money with overseas investments. Simply owning foreign currencies can mean big profits for dollar-based investors, if you buy in at the right time.
2. Safe financial havens. The United States is in a much more precarious situation financially than many investors realize. Consumer, corporate and government debt levels are at record highs, and a recession, when it finally comes, is likely to be severe. Fortunately, in some countries, banks are run much more conservatively, and the risk of failure is lessened. For this reason, there have been very few bank failures in these countries since the Great Depression of the 1930s. By comparison, hundreds of U.S. banks went belly-up in the last big real estate bust in the 1980s. It could be much worse next time around, given the lax lending standards that prevailed in the 2003-2005 real estate bull market.
3. Protection from a falling U.S. dollar. For the same reasons I just described, the U.S. dollar is in trouble-big trouble. Rising interest rates have given the dollar a temporary rebound over the last few months, but there's no guarantee that it won't resume its long-term bear market. Most U.S. banks make it difficult to buy foreign currencies, but it's a different story in an offshore bank-you can invest in any freely traded currency, in many different forms-CDs, stocks, bonds, etc. Even if these currencies don't rise in value against the greenback, your portfolio will gain diversification.
4. Financial privacy. The United States has some of the most relaxed privacy laws in the world. Information about you is bought, sold or shared without your knowledge or consent every day. You can slow down this trade in your data, but you can't stop it, especially if it's the government doing the snooping. And financial accounts are notoriously insecure, contributing to an explosion in identity theft. It's also easy for legal predators to zero in prospective targets. For a few dollars, you can perform a search on the Internet to locate your target's home address, work history, telephone records and even balances in U.S. securities and bank accounts. Most other countries regulate this trade in information much more strictly than the United States. And in countries with bank secrecy laws, it means that this kind of financial information can never be shared, except under stringent conditions.
5. Asset protection. Due to the proliferation of lawsuits in the United States-more than 50,000 per week-getting a portion of your wealth outside the United States is also important for asset protection. U.S. juries are notorious for awarding millions of dollars of damages for actions that almost never lead to lawsuits in other countries. But outside the United States, you can find "wealth havens" with legal procedures in place that are highly unfavorable to frivolous litigation. In Nevis, for instance, someone who sues an asset protection trust must first post a US$25,000 bond with the government to cover court and others costs. And the statute of limitations for filing legal challenges to the trust runs out one year from the date it was created.
6. Protection from civil forfeiture. The risk of having the government seize your property may seem remote, but it shouldn't, if you own assets in the United States. Under civil forfeiture laws such as the USA PATRIOT Act, you don't have to be convicted or even accused of a crime to lose your property. By contrast, most other countries are skeptical of civil forfeiture laws. In Austria, for instance, civil forfeitures are enforced if there is an accompanying criminal proceeding. That's an important safeguard lacking in U.S. courts.
7. Protection from corruption and crime. In many parts of Asia, South America and Africa, residents must deal with a corrupt legal system. Corruption can easily lead to a situation where criminal gangs infiltrate the banking system and the tax administration.
Successful entrepreneurs in such countries avoid the official banking system to prevent shakedowns, thefts and even kidnappings. Instead, they maintain the bulk of their assets offshore in a stable country like Switzerland with a trusted legal system.
8. Business opportunities. Rapidly growing economies in eastern and southern Europe, like Southeast Asia, South America and even Africa present shrewd business opportunities. And even if you're not ready to set up shop in Prague or Kuala Lumpur, you can target these profitable (but volatile) markets in your offshore investment portfolio.
9. Protection from terrorism and similar financial disruptions. Sept. 11, 2001 demonstrated that U.S. markets are vulnerable to terrorism and other disruptions. All major U.S. stock exchanges remained closed four days after the September 11 attacks. But investors with non-U.S. accounts could trade on foreign markets.
So, what are you waiting for? Right now is a great time to make your first offshore investment, because the U.S. dollar has temporarily strengthened after a slide to near-record lows earlier this year. And you never know when you might be targeted for a lawsuit or civil forfeiture.
MARK NESTMANN, Wealth Preservation and
Tax Consultant on behalf of The Sovereign Society
assetpro@nestmann.com
EDITOR'S NOTE: Interested in going offshore but want more information before moving forward? This November, The Sovereign Society is hosting our first ever Offshore Advantage seminar to educate offshore novices. Click here to find out more.