Investment diversification is a time honored means of preserving capital as well as taking advantage of a wide range of investment opportunities. Here we consider three reasons to diversify your investments offshore instead of back home.
The Decreasing Value of the US Dollar
An excellent idea and the first of our three reasons to diversify your investments offshore is to avoid having all your investment denominated in US dollars. In addition, banking assets as your assets as Colombian pesos instead of dollars in 2012. During 2012 the peso outperformed all other currencies versus the dollar. By the second half of the year Colombia started buying dollars to control the rise of its currency. Think of making money on your bank savings as compared to the dollar as your business grows in a growing economy. If you want to make money by investing remember that when your currency decreases in value your investments need to run harder just to keep up. With this one of our three reasons to diversify your investments offshore in mind consider what market you want to be in.
Growth versus a Mature Market
The second of our three reasons to diversify your investments offshore is that, if you are from North America, Europe, or Japan, there are faster growing economies and faster growing markets than back home. China certainly comes to mind when one thinks of growth but how about India, Russia, or Brazil? When thinking about the Western hemisphere consider Mexico which is vying with Brazil for being the Latin American superpower. For someone interested in a country where a lot of English is spoken and there is a long and strong connection to North America think of Panama. This little nation on the land bridge connecting North and South America has had a growth rate as fast as that of China for the last decade or more, never saw a recession in the last few years and promises to see more growth with the completion of the Panama Canal Expansion Project in 2015. Consider taking your investment skills to a region where growth is still kind and where the government is more interested in having you invest to create jobs than in taxing away your hard earned capital. And remember that there are sound dividend stocks in the USA with a long presence in Latin America and elsewhere. With this one of our three reasons to diversify your investments offshore in mind read on about tax havens.
Tax Havens (= Tax Advantages)
The third of our three reasons to diversify your investments offshore is to look for a tax haven or two. It is certainly possible to bank, set up a business, have a retirement, and/or retire offshore. There are many so called tax havens in the world. The term, tax haven, means that a country offers a set of tax advantages. Not all are alike. And, despite what one might read on various internet sites, it has become extremely difficult to hide significant sums of money offshore. Nevertheless there are countries looking for investment. They may well off freedom from a variety of taxes if one chooses to diversify one’s assets and invest in a given country. Tax haven advantages include the following:
- No taxes levied on anything
- Only taxed on income gained in the tax haven country
- Low tax rates and tax treaties with your home country baring double taxation
- Tax laws unique to the country
- Benefits for individuals (typically retirees)
- Business tax breaks
There are certainly more than three reasons to diversify your investments offshore but please consider the above food for thought. As always sound fundamental analysis is necessary wherever you invest.