International diversification of wealth (no matter how large or small) can save your economic freedom. Although most of our readers thoroughly understand this concept, one of the most oft-heard concerns is that, by offshoring assets, one may not be able to get to them as easily as they now can. Here’s the response to that, and some practical advice on what you can do to protect yourself.
Let’s say you presently regard yourself as being economically diversified. You own stocks and bonds, you have some cash, you have a retirement fund and you have a bit of gold stuffed away at home. On the surface, it would seem that you’re covered.
Trouble is, you have all your wealth in one jurisdiction, and should that jurisdiction find itself in an economic crisis, all that “diversification” will be seriously at risk.
Of course, it’s human nature for us to want to keep our wealth close at hand. It feels more secure than having it miles away from us. We tend to follow this concept even though we’re well aware that to have our wealth really close (i.e., on our person) we would be asking to have someone with a gun take it away.
Although we understand this, we somehow manage to convince ourselves that our own government, should they decide that they wish to get their hands on our wealth, is less of a threat to us than some thief. If we’re being really truthful with ourselves, governments pose a greater threat than the average thief, as they can steal legally.
Confiscations and Bubbles
In recent years, the governments of the US (in 2010), Canada (in 2013) and the EU (in 2014) have passed bail-in legislation, allowing the confiscation of deposits in bank accounts. When confiscation does occur, I believe it will happen without warning, as it did in Cyprus. One day, you wake up and your money is gone. What can you do? Nothing. It’s legal.
But you may still be all right, since you’re diversified. How about your retirement fund? Well, both the US and EU have announced that, should the investments of your fund be deemed to be at risk, the government will ensure that you will not lose your money, by requiring that your fund be heavily invested in government Treasury bonds, which are guaranteed. However, should there be an economic crisis, that guarantee will quickly go south.
Again, when this happens, it will happen suddenly, without warning.
Well, how about those stocks and bonds? You broker assures you that he has wisely invested your money in a variety of stocks and bonds and he declares that your investment is therefore diversified.
Trouble is, the bond and stock markets are presently in the greatest bubbles the world has ever seen. Even a minor crisis can put a pin to those bubbles without warning.
In actual fact, the only investment you have that’s not at risk from a financial crisis is the gold you have at home. It will actually benefit from a crisis. Precious metals have been described as the only investment today that is not concurrently someone else’s liability, and this is quite true.
In actual fact, your bank accounts, retirement fund, stocks and bonds are not diversified at all. They are, in fact, totally at risk, should you reside in one of the above jurisdictions.
Crises and Complications
But that, of course, hinges entirely on whether a crisis may occur in the future. Unfortunately, those jurisdictions are all experiencing major debt problems. The US in particular is in the greatest level of debt the world has ever seen.
The EU owes less but is also more economically fragile and is already popping its buttons. The US will follow and its neighbour, Canada, will be pulled down with it. That’s why they’ve all passed bail-in legislation, so that they can use your wealth in a last ditch effort to buy a bit of time on the way down.
Not a very promising situation. So, will everyone go down with the ship? Not at all. There will be those who recognise that “keeping the wealth close” is not the most important aspect of retaining wealth.
Internationalisation: The practice of spreading one’s self both physically and economically over several jurisdictions in order to avoid being controlled or victimised by any one jurisdiction.
Internationalisation is not merely sending wealth offshore, it is the art of studying those jurisdictions in the world that, at any given moment, have no confiscation legislation, have a reputation for political stability and have firm non-intrusive national policies.
Internationalisation and Diversification
Those countries whose governments stay out of your bank account, stay out of your retirement fund and stay out of your other investments to the greatest degree are invariably the safest places for your wealth. Although there are no guarantees, these jurisdictions are less likely to go after your wealth and will be the last to do so, even if other jurisdictions have taken all you have.
So, is the “keeping the wealth close” idea valueless? Not strictly, no. Someone in Australia might very sensibly choose Singapore or Hong Kong as his first choice for internationalising. Someone in Europe would be likely to make Switzerland his first pick.
In the Western Hemisphere, the British Virgin Islands (BVI), the Cayman Islands and the Bahamas are top choices. A one-hour flight from Miami provides a far less rapacious government, in addition to true diversification.
The greater the level of wealth, the more diversified the investor will want to be. Those who diversify into Switzerland, Singapore and BVI will increase their safety level beyond those who have utilised only one or two locations.
Today, those who are living in a jurisdiction that may, in the near future, be looking at a national economic crisis at home, should regard any wealth in banks to be sacrificial, i.e., that it might very well be swallowed up soon.
So, the first concern is to get the wealth out. But what then? Aren’t overseas banks being threatened as well? Well, yes, they are. Although they’re subject to local laws, rather than the laws of the EU, US or Canada, many of those banks are being threatened by those countries and are under pressure.
So, whilst they represent a very definite step away from risk, they cannot maximise that safety. Therefore, the second step is, as much as possible, to transfer the wealth into a form that is difficult (or impossible) for other governments to confiscate.
Hence, if the EU were to attempt to confiscate land in, say, Hong Kong, it would be an act of war against China. If the US were to attempt to confiscate land in, say, the Cayman Islands, it would be an act of war against its closest ally, the UK. Possible? Yes. Likely? Very far from it.
The other investment, precious metals, tends to be off the radar from reporting requirements for tax purposes. It additionally has the advantage of being liquid. Bullion can be sold quickly and is therefore the ideal for emergency purposes.
The ideal, of course, is to diversify, so a balance of bullion and real estate are advised. Cash, privately held (again offshore), should be part of the mix. If you have the expertise to diversify further into fine art and other collectibles, so much the better.
Much of the world has gone on a massive spending spree and has, in effect, used a credit card to do so. Soon, that bill will need to be paid and the jurisdictions that are in debt will unquestionably be revealed to be insolvent.
The economic crisis, when it hits, will be sudden and will be devastating. Everyone in those jurisdictions will be negatively impacted, but those who have internationalised their wealth will fare best. When the dust settles, they will be the ones who are in place to recover and rebuild.