We write regularly of the importance of global diversification. However, I understand that, until you’ve begun taking steps to diversify your assets, your investments, and your life overseas, it can be difficult to appreciate just how important an idea this is… and just how big the upsides can be.
The diversification strategy that makes most sense to me fundamentally is foreign real estate. Here are down-to-earth examples of how I’ve diversified my life internationally over the past 15 years.
Note that while the diversification benefits are many and varied, each example is based on a real estate investment:
Residency: Owning property often qualifies you for residency.
I’ve obtained residency in three foreign countries through the purchase of real estate. Having a foreign residency means there’s another place you can call home if you ever decide you feel like you want or need to make a move. This provides a great feeling of security.
Banking: Residency also opens the door to a country’s banking and financial services industry.
A bank or brokerage account allows you to keep some of your funds outside your home country. Holding funds in two or three different countries (again, in bank or brokerage accounts) provides diversification of economy, political regime, markets, and sometimes currency.
Retirement fund security: I know that my retirement funds in the United States can be the target of lawsuits and creditors.
That’s why today half of my retirement funds are invested abroad. They’re in real estate, foreign banks, and investments in a number of countries. So, while my IRAs in the United States could be attacked, I always have a backup nest egg abroad to fall back on.
Insulation from lawsuits: Lawsuits are a huge problem in the United States, where we have 5% of the world’s population and 90% of its lawsuits.
Any property you hold in the United States is at risk and could be snatched from you by a greedy litigant. Property and other assets abroad are insulated from this risk.
Investment opportunities: Two-year CDs in my bank in Uruguay pay 7.05%. In Colombia, my savings account generally pays between 4% and 6%. So my savings are not only in another country, but they’re earning a rate of interest that I can’t get back home.
For all of these reasons and others, among the options you have for diversifying internationally, real estate is my favorite. In addition to the advantages I’ve shown above, real estate is my preferred diversification vehicle because:
—You don’t have to report it to the IRS. While my foreign bank accounts must be reported to the Treasury Department, there’s no reporting requirement for real estate. This means it can be more private than most any other investment option.
—It produces significant income. Real estate is one vehicle that can actually produce income. My rental apartment in Medellín produced enough to live on in Medellín. And, in addition to generating income, real estate can appreciate in value.
—It has intrinsic value. Unlike paper money, stocks, or electronic funds, your property overseas has its own intrinsic value. So, as we like to say, the value can’t go to zero.
—It gives you a brand-new life experience. Having a home overseas—even part time—is like getting a second life experience in a single lifespan.
Granted, precious metals—physically held by you—can also be non-reportable to the IRS, and they also have intrinsic value. But you can’t live on a gold coin, and you can’t rent it out to produce an income.
Today I’m fairly well diversified, but it has taken 15 years to reach this point.
I’d have gotten to this point quicker and more efficiently if I’d had a plan to begin with. I could have accessed more of the world’s moneymaking opportunities sooner.
We are enjoying a Golden Age of global property investing. Every investor should be considering diversifying his portfolio to include foreign real estate.