Banking
Financial Diversification with Offshore Banking and Investing
Global Banking & Finance Review®
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Offshore banking and investing can enhance financial diversification, offering potential tax benefits and unique opportunities not found domestically.
By Luigi Wewege is the Senior Vice President, and Head of Private Banking of Belize based Caye International Bank,
No one has to sell you on the idea of establishing offshore bank accounts. You already have a savings account as well as a time deposit account. Both of them allow you to set aside funds that will make those retirement years more comfortable. What’s not present in your offshore strategy is adding some investments to the mix.
There’s a lot to be said for creating an offshore investment portfolio, especially if you employ the right approach. Now that you’re thinking along these lines, there’s bound to be some questions. Here are some of the most common ones that people ask when establishing offshore investment accounts along with the answers.
Why Should I Consider Offshore Investing at All?
Is there any reason to think about offshore investing? There are plenty of options to consider at home. Can you expect those offshore opportunities to do anything for you that the domestic ones are not capable of doing?
There is a lot of similarity between offshore and domestic investments. That means to some degree you can expect returns that are a lot like the investments you have at home. At the same time, there are a few factors that help to set offshore investments apart.
For example, the potential for greater returns while incurring lower volatility is present. The tax structure related to those returns may also be more favorable. You’re likely to encounter investment opportunities that are unlike anything that you could get at home. These differences are one of the primary reasons to consider creating an offshore investment portfolio even if you have a robust one at home.
Does It Matter Where Offshore Investments are Based?
There’s no doubt that you should look closely at where each offshore investment is based. Just as with other types of financial opportunities, the laws governing those investments will vary somewhat from one country to the next. That’s not necessarily a bad thing. While there are nations that you will want to avoid, others offer welcoming settings for international investors like you.
Do look for laws and regulations that provide protections for you as well as for the party offering the opportunity. Opting for investing in a nation that has a stable economy and political situation is also a good idea. A good rule of thumb is that if the country in question happens to be a place where you would like to visit often or possible live one day, there’s a good chance that it would also be worth establishing investments there.
How Diversified Should I Make My Portfolio?
The rule of three is a good idea. This means that you will make sure the portfolio includes a minimum of three different types of investments at all times. If possible, you want the three to not be too closely associated. If you come across other investments that are not related to those three, that’s all the better.
Why do you want at least three different investment types? This is a good way to insulate yourself from shifts in the market that could threaten to undermine the value of your portfolio. While you can expect some changes in the worth of each investment, it’s unlikely that any two of the three would lose value at the same time.
A more likely scenario is that if one is going through a slump, another will be gaining in value. Even if the balance between the three is only enough to prevent an overall loss, that positions you to ride out any temporary slumps and increase the odds of seeing the investments begin to recover over time.
Should I Go for Investment Quantity or Quality?
Some will tell you that more is better when it comes to investments. It’s true that you can have too few investments. It’s also true that you can spread yourself so thin that the portfolio never performs in any significant way.
The most practical approach is to seek out the middle ground between quality and quantity. On the one hand, you want to choose investments with a strong track record and that are likely to continue appreciating in value over time. You also want to have enough investments to protect yourself from market shifts that temporarily weaken the returns on some of your holdings.
While three is a good minimum, feel free to hold several more investments that happen to be different and have the potential to generate ongoing returns. That type of diversity will serve you well in the long run.
How Do My Personal Financial Goals Impact the Selection of Investments?
What do you hope to accomplish with your offshore investing? Perhaps you want to build greater wealth for the future. Maybe the plan is to use the returns from the portfolio to cover educational costs for the kids. The goal may be to generate resources that you can use in the event of an emergency.
Let your personal goals determine how you go about choosing offshore investments. If you do have a plan to generate a certain amount of return within the next five years, think about how each investment will help you reach that goal. If it seems to be a good fit and you’re happy with the past performance, that opportunity could be right for your portfolio.
Does My Comfort Level Have Any Impact on Investments?
You already know that investing involves some degree of risk. That’s just as true with offshore investments as it is with your domestic ones. You get to decide if the risk involved with a specific option is worth it to you, or if the risk exceeds your comfort level.
Investment portfolios are intended to increase a sense of security, not keep you up at night. Whatever anyone else things, be happy with the contents of your offshore portfolio. If you like, further diversify the portfolio by securing a combination of investments that carry a relatively low amount of risk, but which produce modest returns.
Add in some investments with greater volatility and the potential for higher returns. As long as the failure of the latter won’t leave you ion dire financial straits, everything will be fine.
Once I Make My Initial Investment Choices Do I Let Them Ride?
Some of the investments in your offshore portfolio will remain there for the long term. Others will only be held for a time before you sell them. As with domestic portfolios, it’s important to monitor the market, know when a holding is peaking, and when the time to sell is close at hand.
The funds that you earn by selling assets just as they peak in value will make it easier to buy new ones that are about to start climbing. In this manner, you have a better chance of increasing your financial wealth.
What are Some Examples of Offshore Investments?
There are several key types of offshore investments that you want to consider. Real estate is one option. Unless serious issues with the economy develop, real estate usually qualifies as a low-risk investment capable of producing consistent returns.
Offshore mutual funds are another smart move. With the right type of mutual fund, you get to tap into options that are somewhat new but show great promise. Best of all, you get to share the risk with other investors even as you will share the returns that eventually develop.
Precious metals are also worth considering. Silver, gold, and platinum are often part of different offshore markets and have the potential to generate significant returns.
Don’t hesitate to talk with a broker who is based in the country where you want to invest. Along with these options, the broker may have some other ideas that fit in neatly with your financial goals.
The Bottom Line on Offshore Investing
The bottom line is that offshore investing should be part of your overall financial planning. Approach it with care, ensure that it’s diversified in a way that protects you, and proceed at your own pace. Doing so increases the potential for success and greater financial security.
Contact Caye International Bank today and learn more about how to establish and manage offshore accounts. Your efforts today will make a big difference in the years to come.
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The article discusses financial diversification through offshore banking and investing.
Offshore investing can offer greater returns, lower volatility, and unique opportunities.
Include at least three different types of investments to mitigate market risks.
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