How to invest globally?
How do I do global investing? The question popped up during a conversation with a friend living in Brazil and I acknowledge that I was a bit surprised about it. I was born and raised in Switzerland and even well before the internet, investing was a “simple” thing. I could pay a visit to the teller of my bank agency or just give an order over the phone.
The reality of each investor depends on various factors, among them you can list your domicile and the regulatory framework of the banking and tax system you live in. My opinion is very simple. First, you need to assess the accessibility to international investments and financial services you need and see what fits your needs. Second, you need to verify if you can go international which means offshore banking.
Taxes and regulatory framework are important to consider. If you have dual passports, US citizens are taxed on their citizenship regardless of their domicile and must file income tax with the IRS on an annual basis. In addition, US passport holders can only invest in SEC approved/registered securities/financial instruments. They may encounter difficulties, while living abroad, to be served by a US based financial institution (cross border rules for selling securities) and or find a foreign financial institution which accept to serve US clients (reporting burden & requirements).
A 2017 survey from the Boston Consulting Group provides a good overview of the offshore banking. Switzerland remains the top destination (with tax transparency in place!) and the rise of Hong Kong and Singapore has been greatly driven by Chinese offshore money.
Regardless of where you intend to open an account, minimum deposits usually apply for non-resident ($100-150k)
Switzerland, Luxembourg, United Kingdom and Monaco have a long tradition to serve non-resident clients. Usually, a personal account can have multiple current accounts in different currencies and many financial institutions offer excellent online e-banking services which give access to most markets worldwide. Consolidated statements give an easy overview of your holdings and performance. Compliance requirements have increased quite a bit, so it is important to verify if the selected institution accept clients’ residents from your country. Some offer the possibility to complete online the documentation.
Here are we links you can explore:
https://www.editus.lu/en/bank-and-banking-service/banks-2r
In the USA, you will need to open an investment account with a FINRA Broker Dealer. Generally, foreign institutions who offer investment services in the USA are more accustomed to deal with non-residents. Now it is very important to consider the potential taxes liabilities you may face as a non-resident alien. US based property higher than USD 60’000.- owned by non-resident US Alien is subject to US estate taxes of 40% at death (except if there is a special treaty between your country and the USA). You should seek professional advice from a tax planner but many non-residents alien use offshore companies to hold their investments and avoid such taxes.
In regard to Hong Kong and Singapore, non-residents can open investment accounts but they are mostly interest in larger accounts.
Offshore investing is not that complicated but requires some planning. One important decision you need to take is if you will need professional investment services (paid services) or manage directly your investments (self-directed investor). Costs comes in two forms:
- Direct costs: You can verify them easily in your account statements (commissions, brokerage, custodian, management fees)
- Indirect costs: Much more difficult to verify since they take the form of spreads, prices markup, markdown (trading execution practice) and or commissions rebates. You have basically two types of securities, listed like stocks and some bonds and over the counter like many bonds and other derivatives (structured notes etc..).
Do not fall into the trap of cheap is beautiful. Costs to Asset ratio of financial institutions in the developed world are quite similar but execution practices differ from one place to the other (EU-CH-USA). Always ask the institution you are interested to work with how they proceed.
Don’t be fooled by “Free Investment advice” and “free trading” advertising campaign from financial institutions. You will pay the tab anyway through, probably, much higher indirect costs.
Keep your investments simple. The use of leverage is wonderful when all goes as planned but can be also very damaging. Borrowing on your assets means submitting yourself to very flexible lending policy. The 2008-2009 crisis showed us that collateral values of securities can rapidly vary, and your broker has full power to liquidate positions. In the USA, the use of futures (require margin) is more widespread than Europe/CH. Futures contracts are great instruments but use them for a specific purpose (ex: hedging a stock portfolio). Many other derivatives like CFDs (contracts for differences) offer easy exposure and “cheap” leverage to all kind of assets. Bear in mind that CFDs carry on credit risks linked to the issuers like structured notes.
Free investment advice is a ‘recurrent” advertising theme used worldwide by the financial industry, whenever and wherever permitted. Indirect costs will foot the tab!
The success of your portfolio does not depend on trading but investment choices/allocation. Just remember, Warren Buffet is not a trader but an investor! SGG newsletter is about macro investments and allocation, not trading. SGG’s approach and method to Wealth Preservation & Opportunist Macro Investing has been designed for self-directed investors. It runs ETF’s portfolios to illustrate that successful investing is possible for everyone. Register for insights reports and timely information whenever changes occur.
