Offshore Investment 101

We work hard for our money so when we invest it, we need peace of mind that we’re making the right choices. Many people find offshore investments to be a daunting process - but once you understand it fully, you’ll realise it’s a great way to reach your financial goals from across the pond and to earn funds in a foreign currency.

Offshore investment essentially means investing in assets that are outside of your country of residence. There are two ways to do this. The first? Take your money outside of your country using reserve bank allowances. The second? Do an asset swap - which is a process that allows you to still invest in global investments, but when you want access to your funds, they need to come back into your own country. The upside is that there are no reserve bank approvals needed for an asset swap.

But how does it work, why does it work and where should you invest your hard-earned money?

Craig Featherby, Group CEO of Carrick Wealth has some solid advice to help guide you on the road to financial confidence.

If you have the funds to invest but you’re wondering where the best places are, the short answer is to have investments across the globe.

To get to this point, investors generally use an investment platform or structure to house their investments and to act as a custodian. These platforms are based in highly regulated jurisdictions, such as the Channel Islands. The actual investments that are held within these platforms will be spread across geographies, in both developed and emerging markets.

But why would anyone be interested in this kind of investment? Simple. Risk reduction. And one of the only time-tested ways of reducing risk is to diversify your portfolio. A key part of offshore investment diversification is to have multiple investments around the world - which will give you access to different geographies, currencies, asset classes and industries. You also have access to investments and companies that aren’t usually available in your local markets. And finally, it gives you access to a stable currency such as the USD, GBP and Euro. This reason alone is a big motivator - especially for clients living in an emerging market with a volatile currency.

When it comes to choosing the best investment options, there are two factors to take into consideration.

  • With global interest rates at the lowest in the history of the world, cash is no longer a viable option over the long term, as your capital will be eroded by inflation and fees.
  • A fixed income doesn’t offer a high yield in our current economic climate and has additional risks associated with the asset class. When interest rates do eventually rise, then fixed income prices will decline.

So that leaves equities as one of the main assets to consider. But within this asset class, there are many sub-categories to keep in mind. A few of these include:

  1. Value investing vs. Growth investing
  2. Developed market vs. Emerging market
  3. Industry exposure - such as technology, banking, consumer staples and industrials.

Global equities continue to be the best performing asset class, but they are more volatile and investors need to have a long-term investment horizon.

While it is essential for younger investors to have a healthy exposure to equities, it is equally important for retired clients to have exposure to growth assets. Retirees often live for 30+ years, so these clients do need to take some risk to ensure their funds last and that they can retire in financial comfort.

Then there are commodities. This is an interesting asset class, but commodities are cyclical and carry increased risk and volatility.

When planning for your offshore investment, keep in mind that it’s important for most investment portfolios to also have exposure to property investment - but this is a very complex area of investment with multiple sub-categories.

At the end of the day, it’s ultimately your choice where you’d like to invest your money. But invest in the wrong asset, and you could be paying for it down the line.

We are experts in the offshore planning space, which spans the investment universe as well as the best way to hold investments from an asset-protection, tax-efficiency and succession-planning point of view.

Carrick takes great care in understanding our clients’ needs and objectives and we build bespoke structures and investment portfolios to fit. Crucially, we monitor investments in conjunction with our investment partners on a daily basis and make changes as and when opportunities arise.

If you’re unsure where to start, then get in touch with one of our advisors. We’re excited to show you the opportunities that could give you financial freedom for years to come.

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