The Pros And Cons Of Offshore Investing

Have you thought about geographic diversity for your portfolio? Offshore investing can be one option.

While most Americans invest their money into domestic enterprises, most notably the stocks trading on the New York Stock Exchange, any investor has the potential to create and maintain wealth by using overseas transactions and markets. The stereotype, as explained by Expat, of unscrupulous wealth management teams socking away dollars in Caribbean nations tends to be the exception rather than the rule. A sizeable number of everyday Americans choose to put their money in foreign markets to better perform.

Currency Trading

What's In A Name

A person interested in options for offshore investing should know that they have as many choices internationally as they would domestically. Stocks, options, bonds, money market assets, treasury bills, and certificates of deposit can all be purchased and sold on an international scale after evaluating all available data.

The Federal Reserve's 2014 Comprehensive Capital and Analysis Review (CCAR), a stress testing exercise done to evaluate 30 banking institutions, presents a “severely adverse” scenario which European markets continue on a downward spiral. But the European Central Bank recently raised its growth projections for 2014, with President Mario Draghi calling the eurozone's overall outlook “positive.”

Investors should seek out financial advisers in order to make good decisions about their financial choices. Indeed, the need to get professional help becomes more imperative on the world market. As EconomyWatch explains, the risk of investing in a scam or fraudulent stock goes up whenever you choose to put your money in foreign hands.

Benefits

As in many investment plans, the greater the diversity of a portfolio, the more likely it is that positive financial growth will follow. By investing in markets that experience different conditions than domestic markets, you take advantage of the highs and lows outside of your own country's borders. In addition, some offshore investment nations have different levels of regulation, better security or less taxation. CitiBank makes note that select markets such as London enjoy much greater regulation and security than most. Those who intend to live abroad will be able to access their money abroad, in whatever currency becomes preferable. For many investors, the great benefit lies in the taxation of foreign countries. A tax reduction as little as a few percentage points can be enough to keep an investment in the black, and some nations even have tax-exempt status, so that an investor can keep most or all of their created capital.

Drawbacks

Just as no investment comes without its share of risk, so too do overseas markets create perils that can affect wealth management. The Securities and Exchange Committee notes that currency exchange rates can drastically cause the value of foreign investments to rise and fall, because converting the cash value into American dollars may leave you with decidedly less value than you hoped whenever the dollar performs poorly. Foreign politics and economic events may make a gem of an investment into worthless paper. Finally, you cannot take legal action in the United States against a foreign market player. As such, any investor should look into company verification in order to determine what constitutes a potential risk. Verification helps you avoid fraudulent investments by determining whether a foreign entity really has the capital and production to back up an impressive appearance on paper.

3 thoughts on “The Pros And Cons Of Offshore Investing”

  1. Shobir | Infobarrel

    It’s tempting to invest in an offshore fund. I have a duel nationality and could invest in a Middle East bank account and get 12% return which is fantastic, the only thing that stops me is knowing that my capital is at risk with these high volatility companies. Excellent article Miranda, thanks for sharing..

  2. Nick | Millionaires Giving Money

    I’ve always had an interest in investing offshore but have always been put off with high fees and high risk. I only invest in index funds now and have some good exposure to different parts of the world. Great insights, thanks for sharing.

    1. Like you, I’m more inclined to get my geographic diversity from index funds and ETFs. There are plenty of great ways to expose yourself to foreign markets without actually investing in foreign markets. I’m also starting to looking into foreign REITs. I haven’t invested in any yet, but I’m looking.

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