Here we will take a look at both international investment and diversification as a way to improve returns and also to add an element of safety and security to your finances. But first,
Why Is International Investment Important?
Let’s start with two stories from people I have known in my life.
The first was an Iranian gentleman. He was living in Brussels, Belgium, and had been for many years. I came to know him when we did a little business together.
He explained to me that his family was quite prominent in Tehran and his father was a relatively high member of the government. And then one day, out of the clear blue sky, the Ayatollah returned on 1st February 1979. The country was thrown upside down and anyone connected with the old regime of the Shah went into hiding, or exile, or was imprisoned or killed.
Fortunately for my friend, his mother was Belgian and everyone in the family had taken the time to apply for and be granted a Belgian passport. He explained to me that they burned their Iranian passports and headed off to the border. The border guards had instructions to allow foreign nationals to leave, but the borders were closed for Iranians.
As a family, they fled to Belgium, where they lived for the rest of their lives. However, on arrival, they literally had nothing, only the clothes on their backs and whatever they had carried with them. My friend spent almost six months homeless until he was able to find work and get back on his feet. He was a very well educated man, as was his whole family, but he started again as a laborer on a building site.
The second story relates to someone that I now know. His family moved from India to Uganda shortly after his birth. As you may know, the Indians were a ruling class and as he says it, they treated the locals very badly. In 1971 Idi Amin seized power and literally threw out the ruling Indians. My friend and his family moved to London, he was aged 7.
Once again, they arrived with virtually nothing. In Uganda they had been “really, very wealthy”, but in London they lived in a council house in a London suburb. His parents were separated for three years because the father could only find work in the north of England. I would imagine that the north of England was not a nice place to be an Indian in 1971.
Luckily, both families were able to leave the country, but there would have been many more that did not and perished as a result. This begs the question, if you have enough money to live well, why not put some of it in another country so that if everything goes wrong, you have somewhere to flee to?
International investment is not just about adding a few foreign stocks or funds to you domestic portfolio, or investing in foreign currencies to diversify, but also about physically putting money and assets aside in another country that you can access. If life turns sour, you can go to that other country and will have something to help you start again.
In our modern world, all those villas in the Cote d’Azur and apartments in Mayfair and Manhattan that are owned by the one percent are insurance policies against problems at home. They are thinking that, “If it all goes wrong, at least if I get out alive I can live quietly in France…”
This might sound like international diversification, but it is more than that – it is also an escape hatch in case times of trouble should arrive. People of wealth owe it to themselves to take steps to protect their fortunes – whether they were acquired by selling a business, successful investment, some form of payout or other means.
The key point is that the history of humanity is conflict, aggression and political unrest. Betting that the good times will never end is unlikely to be a winning bet. This website’s entire goal is to help convince people of education and wealth that they ought to be more free and independent.
Practical International Investment
There are many ways that this might be achieved. For example, something as simple as a bank account in a foreign country might be enough. Honestly, for the majority of people, that would be enough. Most of us do not have tens of millions set aside so that we can buy that villa on the Cote d’Azur, so we must start smaller.
Another option might be a safety deposit box in another country to hold a few assets in. Or perhaps even a small residential property, a “holiday home”. You might have digital assets that could be moved aside. For example, digital currency such as Bitcoin, or other assets such as websites, domain names or apps.
These ought to be the simple options. Further up on the scale, possibly of cost, but also complexity and physical requirements, would be to obtain residency status in another country and then on to another passport.
With those things in place, then foreign residency and bank accounts can lead to true international investment, with a stock broker in country. That would open up many doors and opportunities.
How To Make A Profit From International Investment
Currency changes can add in an interesting element to any real asset diversification. How?
Imagine that you travel from the US to Europe and fall in love with a region of Spain and decide to buy a small property. The value of the property might rise or fall in value and hopefully you have a good idea of what the market might do in the medium-term before you buy. But just imagine if the euro strengthened against the dollar. That would provide a second level of appreciation in the asset price, because once converted back into dollars, there would be this double whammy.
Of course, this can work against you too. In the long-run, you are as likely to see both situations. The matter then comes down to whether you decide to sell the asset while the good times are in play. Buying distressed assets in a country has many risks, but if you get it right and have luck on your side, there is every chance to make a nice profit.
How To Make A Loss From International Investment
Let’s continue to imagine that there is a holiday home property in another country. Currencies would play their part, as mentioned above. But borrowing to buy an asset would be a much higher risk proposition. Just imagine that interest rates increased and that had he result of increasing the relative strength of the currency, suddenly a monthly mortgage payment on a property would be for an increasing amount of money in an increasingly strong currency. That could get expensive fast.
Carrying costs have wiped out many borrowers in the past, it could wipe out you too. In times of increasing interest rates, there would normally be a reduction in the liquidity in a property market – because less people can now afford the repayments. This might make it difficult to sell your property. Therefore, it is important to work out what your possible worst case scenario is and whether you can genuinely afford it.
All of this means that international investment has these additional layers of complexity and risk to take into account, so it is probably better for most people to diversify abroad using only unencumbered money (no loans). That would not guarantee safety, but if an escape hatch is your goal, you wouldn’t want to need it and find that it is not actually going to work because you cannot afford it.