Common mistakes when making offshore investments.
Investing offshore is one of the best ways to diversify your portfolio, gain capital, and take advantage of emerging markets all over the world. There are some simple mistakes that you might make if you’re looking to make your first offshore investment.
In this article, we have laid out some of those mistakes and explained why and how you need to avoid them.
Put All Your Eggs in One Basket
At Alpen Partners, we understand how enticing offshore investments are! Especially those in foreign real estate, fintech, and currency. Why limit yourself to just one of those? In fact, we highly recommend you stay away from staying within one asset class.
One of the biggest draws to making offshore investments is the diversification. According to Modern Portfolio Theory, diversification is one of the cornerstones of a successful portfolio. In fact, diverse portfolios outperform a concentrated one. By owning a large number of investments in more than one sector or asset class, investors can protect themselves from unsystematic risk, the risk that one encounters when investing in one particular asset.
If there are 12 or more stocks in a stock portfolio, unsystematic risk is almost completely eliminated. Systematic risk is always lurking, however. By investing in non-correlating assets, you can protect yourself from volatility.
Non-correlated asset classes are investments like bonds, commodities, currencies, real estate, fine art, and cars.
Jump Right in
The worst thing you can do in any investment situation is invest without taking the proper steps first. There are some things to consider. First, you are going to want a plan. Within this plan, you will determine how much money you are going to spend on the new investment, how much you are willing to lose, and how much you are hoping to gain.
You also need to do your due diligence regarding the investment. This includes which countries have trustworthy financial climates, what asset classes are performing well within that country, and what the banking system is like.
It’s understandable that you may be eager to jump into your new journey. Just make sure you are educated about what can go wrong. You should also be aware of your tax responsibility in terms of foreign earned income.
Stick With Your Home Bank
Don’t trust your regular old bank to get the most out of your new investment. Holding a foreign bank account can offer security, tax advantages, and easier banking.
One of the biggest draws to offshore banking is security. For some, depositing money into a bank in their home country is not safe. Do you trust your bank? Do you think that your money could be safer or that your bank could be doing more with your money? Maybe it’s time to try offshore banking.
In terms of investment, banking offshore can help diversify your portfolio, protect your assets, and is the first step in moving your assets out of your country. Opening a bank account offshore also plays a key role in forming an offshore corporation, offshore SD IRA, or international trust. Many offshore banks offer investment opportunities, managed investment accounts, and foreign exchange services.
Holding an offshore account plays a key role in conducting international business. Some international customers like to send money to a non-U.S. bank to completely avoid the U.S. banking system. If you play your cards right and set up a smart tax plan, an offshore bank can also maximize your tax efficiency by holding your offshore bank account in a tax-exempt country.
Do it Alone
So, you have done your research. You are ready to invest in your new favorite jurisdiction. Now what’s next? Before making the investment, you should seek the advice of a wealth management firm that knows the business. Not only will an advisor assist you in your next investment, investment advisors assist clients with a variety of services, including but not limited to the following financial necessities:
Asset protection involves keeping your property and assets safe in the event that you are involved in a lawsuit and you owe money. In this event, asset protection ensures that you will have assets that cannot be used to pay a debt.
Growth of Assets
Building your assets is the best way to make money. Payday shouldn’t be someone’s only cash flow. If you were to quit or lose your job, having growing assets will provide you with what you need to keep your plan on track.
Tax planning is another aspect of financial planning, one that can save you a good amount of money. Tax optimization is looking at a financial plan from a tax perspective in order to reach financial goals through tax-efficiency planning.
Hedging Your Portfolio
Hedging your portfolio involves making particular investments in order to protect yourself from losses from another investment. Hedging is like insurance. Hedging is done to make sure investors are still in good standing in the event of something bad happening. It can’t prevent anything bad from happening, but it can make sure the negative hit isn’t too bad.
Identifying risks and providing strategies to avoid them plays a key role in wealth management and financial planning. A risk management plan typically involves personal liability coverage, property and casualty coverage, disability insurance, and more. The best way to protect your wealth is being aware of what can come at any time and having a management plan before it happens. In the event that something does happen, with your plan in place, you will be able to get back on track without a hitch.
Your wealth is important. If you are serious about your life goals, financial planning and investments are probably important to you. Financial planning can involve many steps from tax optimization to asset protection. Different investments have different rules with different returns.
With the help of financial planning, you will be able to predict where you will be in the years to come by evaluating where you are currently, what sources of income you plan to have in the future, investments you plan to make, and your retirement plans.
Alpen Partners Wealth Management International AG, the sister company of Alpen Partners Wealth Management AG, is now a registered investment advisor with the U.S. Securities and Exchange Commission (SEC). Together with our partner Swiss private banks, our company can now offer the full Swiss private banking experience to American clients, both resident and non-resident.