5 Steps To Hedge Your Economic Bets And Ensure A Legacy For Your Heirs
In the financial world, diversification is about spreading your risk around.
As I pointed out yesterday, it’s no different for your personal life. You need to spread the risk around.
Specifically, here’s what we’re talking about…
Step 1: A Bank Account
The first step for many who realize the benefits of going offshore is opening a bank account.
One reason that opening a bank account can be a good way to get started at this is because you can do it without moving to another country. Of course, if you do move to another country, opening a local bank account is typically a necessity. I opened my first “offshore” bank account in Ireland, but it wasn’t offshore for me at the time because I was living in Ireland.
With bank accounts in different countries, you are diversifying your risk at several levels. The first is economic. You remember the U.S. banking crisis of 2008… and you probably have heard about the Iceland banking crisis, also in 2008… and the one in Cyprus in 2012… to give a few historic examples of why having all your money in one banking destination carries risk.
This is true no matter what country you’re talking about. I knew Americans who had moved all their liquid cash from a U.S. bank to one in Cyprus. They wanted to take advantage of the very high interest rates being paid on Cypriot accounts at the time… and they thought that because the account was in Cyprus, rather than the United States, they were diversified… and safer.
Moving all your money from your home country to another country isn’t diversification. It’s just shifting all your risk from one jurisdiction to another. People with all their cash in accounts in Cyprus in 2012 learned that lesson the hard way.
In addition to diversification of economies, holding funds in bank accounts in more than one country can also allow for diversification of currency. Many banks around the world let you hold different currencies in your accounts with them. However, even if they only allow you to hold the local currency, you’re enjoying diversification from your home currency.
Another benefit of having liquid assets in different banks in different countries is access. If you’re unable for some reason to obtain cash or to make a transfer from an account in one country, you have other options for getting the money you need where you need it… and, remember, options is what going offshore is all about.
Step 2: Residency
Residency is another of the recognized five flags of going offshore. Like banking you can plant this flag in more than one country. However, most people obtain residency in just one country outside their home country. Which country depends on your personal goals.
Maybe you simply want to know you have a place to retreat to if things get too bad in your home country. Many Venezuelans wish they had a back-up residency option right now.
Or perhaps you want to be able to spend more time each year in a country than that country’s tourist visa allows.
Or maybe you’re looking to move to another country full-time.
While most countries offer viable options for taking up full-time residency, some countries make more sense than others as back-up residency options.
Step 3: Investing
Making an investment in another country can be excellent diversification—of economy, of currency, of market cycles…
You could open a stock brokerage account and invest in a variety of stock markets around the world. Or you could purchase gold or other precious or strategic metals and hold them in different countries.
My preferred investment class, as I’m sure you know, is real estate because it’s a hard asset that can produce a cash flow.
I like real estate… and I like business. As I mentioned above, over the past 20 years, I’ve been involved in launching and operating businesses in 7 countries, each a chance to take advantage of a market niche while generating income in a different economy and, sometimes, a different currency.
Step 4: Asset Protection
Asset protection isn’t so much a flag as a strategy for keeping your assets out of the hands of anyone who might get it into his head to try to take them from you (think frivolous litigant).
Many Americans set up U.S. trusts to protect their assets. That’s a misguided approach. U.S. trusts can help with estate planning, but they do not protect your assets against U.S. threats. For that, you have to move the assets offshore… with the help of a foreign corporation, for example, or a foreign trust.
Step 5: Citizenship
Acquiring a second citizenship is typically a later step in any go-offshore plan. Most people don’t start here.
And not everyone is interested in the idea of obtaining a second passport at any stage. Understand, though, that this can be the single most powerful option for creating options, not only for you but also for your children.
The world is an ever-changing place. Your current country of citizenship may be great today, but what value will that passport have in 10 or 20 years… or a generation after that.
Impossible to say.
In the late 1800s, the U.K. was recognized as the major world power… and many probably expected that condition to continue. Today, the country is still economically, politically, and militarily strong, but it’s not a superpower.
The United States could still be the major power in the world in another 100 years but probably not. Will it still be someplace your great-grandchildren will be able to find economic and personal security, maybe. I hope so. But why not give them options and hedge their bets by obtaining a second citizenship that can be passed down to them?
A second citizenship also gives you immediate residency and the right to work in the country. Maybe those things are important to you now… maybe they’re not. But maybe they could be important to your future generations.
I didn’t start out with a big-picture ambitious plan to go offshore according to a strategy that would benefit not only myself but also my children, grandchildren, and beyond. I set out to have an interesting life.
Today, 35 years later, my agenda is more focused and for sure more about my kids and their kids than myself.
That’s not to say that I’m not enjoying the benefits of the plan, as it has evolved, along the way. Every step and every choice has created options and opportunities… for travel, for fun, for friends, for health, and for profit.
You don’t have to internationalize your life as heavily as I have, but you need to internationalize to some extent. In our world today, it’s critical to your and your family’s survival.
It’s also a lot of fun.
Lief Simon
