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Why You’re an Idiot Not to Have Some of Your Investments Offshore

photo by S. Shumad

S. Shumad

Like many U.S. citizens, you may consider offshore bank accounts to be tools best reserved for those who have something to hide.  From the Internal Revenue Service, from the Drug Enforcement Administration, from their unsuspecting soon-to-be ex-spouse.

And, unfortunately, there are a few folks out there stashing cash overseas for some of those very reasons.  But they’re far from the majority.

The people who make up the largest segment of offshore account holders are wealthy individuals who recognize the value and security of diversifying their portfolios to include overseas investments.

Also making an appearance are regular guys like you and me who have seen the light and realized that maybe–just maybe–all of these billionaires, their accountants, and their financial and legal advisors could actually be onto something.  

Here are a few of the legitimate, if not compelling, reasons to get some of your money offshore sooner rather than later.

You could be the next defendant in a case that tops the “Stella” awards.

Named for the 79-year-old New Mexico woman who sued McDonald’s over a hot cup of coffee, the Stella awards list the most frivolous lawsuits filed in a given year.  And they’re not all against multi-billion dollar corporations.

Average Joes get dragged into court every day over the most ridiculous of circumstances.  Take the Massachusetts woman who was rescued from a near-drowning after her son-in-law crashed their car into the Connecticut River.  She suffered some brain damage and sued the driver for damages.  Also named in the suit? The rescue divers who risked their lives to save her.

And don’t forget the Alabama woman who accidentally got locked in the storage unit she had rented to store her belongings following the foreclosure of her home.  She was inside late one night “looking for some papers” when the facility’s manager discovered her unit ajar–and locked it for her.

Despite being found 100% responsible for her own predicament, the jury awarded her $100,000 of the $10 million she sought for her distress, which included a total of 63 days locked inside and a grand total weight loss of almost 70 pounds.  (Conveniently, she had some food stored inside the unit she claimed NOT to be living in.)

Then there was the D.C. man–an administrative law judge, mind you–who sued a mom-and-pop dry cleaners for $65,462,500 for losing a beloved pair of pants.  While his case was thrown out (he’s appealing), there are many Americans each year who are forced to pay similarly ridiculous settlements that make tort reform look like a grass roots effort.  

What does this have to do with offshore banking?

U.S. courts have no jurisdiction outside of the country.  So, while you can’t protect yourself from being sued by your mailman when he trips over the package he just left on your doorstep, you can at least protect some of your assets by holding them overseas and away from the whims of the U.S. court system.

Bocas del Toro  via Celine

Bocas del Toro via Celine

Offshore funds are much more difficult to redistribute.

In addition to the litigation exposure, another common reason people seek places to house their money overseas is the perceived political risk.  Common fears include the current administration’s socialistic undertones, increasing capital controls, threats of the redistribution of wealth, and other government rhetoric.

As a result, many U.S. citizens have never felt less confident in the intentions of their government or less secure within the confines of their country’s financial system.  They have legitimate concerns about where the U.S. is headed.

What’s the solution for minimizing a non-systematic risk in your portfolio?

The answer is simple.  Diversification.  In this case it’s not only a matter of balancing out underperforming investments with more successful ones (although there are certainly many high-performing investment options overseas).

Here it’s more about jurisdictional diversification.  Moving funds away from the reckless, unstable banking systems of the U.S. and securing them in a safer global environment.  

Couldn’t the government just as well come after my funds in an offshore bank account in Panama or Belize, you ask?  Well, sure.  They could.  And who’s to say they won’t? But it won’t likely be their first stop.  Hopefully by the time they get around to going after money in the offshore accounts of its residents you’ll have time to apply for citizenship and meet up with your savings somewhere in a much more favorable climate.

The U.S. is having a hard time keeping pace with its competitors in an increasingly global marketplace.

In many cases, individuals’ decisions to hold capital in offshore accounts has less to do with any legal or political agendas and more to do with the fact that it just makes good financial sense.  Our world is becoming increasingly flatter, and your options are no longer limited to only the financial instruments and institutions in your home country.  

Similar to how large multi-national companies search the globe for the best places to house their communications centers or manufacturing operations, many individuals are now following suit when it comes to their own personal finances.  And, not surprisingly, all of the popular offshore financial centers are outperforming U.S. banks in a number of ways.

One of the most obvious differences between domestic vs. global financial institutions is in the privacy they offer. The U.S. banking system is plagued with level after level of bureaucracy and government regulation, thus increasing banks’ cost of operation.

Some argue that this high overhead is in itself a sort of tax levied on domestic banking operations, resulting in higher fees, lower interest rates on deposits, and other unfavorable effects on customers’ bottom lines.  

Speaking of taxes, that’s another benefit of owning an offshore bank account.  Not in the sense that you’re exempt from paying taxes entirely, as U.S. citizens are taxed on their worldwide income.  However, offshore accounts do afford you the ability to do business through an offshore corporation, trust, or other entity which may offer some specific tax advantages.

photo by VivaTropical

VivaTropical

So what’s the bottom line?

If you were about to buy a new luxury automobile, I doubt you’d just drive to the closest dealership to your house, choose the model you want from a list of options, agree without hesitation to the price and all the terms, sign on the dotted line, and call it a day.

Of course not.  You’d probably research the different models and their features, take a few out for a test drive, call or visit a few dealerships to see where you could get the best deal, and drive away knowing you made the best possible decision in buying your new vehicle.

And that’s just a car.  Why make such un-researched, limited, one-size-fits-all decisions when it comes to your entire life’s savings?  

There are more and better options out there.  Don’t you at least owe yourself a little time to look into them?

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