Political Reasons to Diversify Your Investments

Wednesday, 16 May 2012 10:15 AM

By Ashish Advani

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For the past many months, I have been extolling the virtues of investments overseas as well as the benefits of diversification.

I have tried to give you specific investments, investment vehicles and different strategies to help diversify your investments.

I have spent more than two decades living and working in more than 10 countries in four continents. I know what it is like to live overseas, both the trials and tribulations. What I know is based on my travels and living in various countries, not knowledge I have read somewhere.

But the recent headline that I read made me pause and want to write to you about another major reason why you have to diversify your investments and do it sooner rather than later.

I am talking about the much hyped IPO of Facebook. Every financial media outlet is talking about the Facebook launch of its shares to the public. There are analysts who oppose the pricing, calling it hype and then there are analysts who will be buying Facebook no matter what the price. To them I say, "Good Luck!"

A topic that didn't get all the attention it deserves is the renunciation of the U.S. citizenship of one of the founders, Eduardo Saverin. Born in Brazil, he moved to the U.S. in 1992 and became a U.S. citizen in 1998.

Starting Facebook with Mark Zuckerberg, he now owns 4 percent of the stock and if the valuation proves right, he will have a very large payout on Friday. The tax bill on that itself would be in the hundreds of millions.

Knowing this was going to happen, Saverin moved his home to Singapore in 2009. He chose Singapore for its tax friendly and investor friendly policies. Singapore doesn't have a capital-gains tax. So he will get to keep his large windfall without having to shell out taxes to the U.S. government, which would find ways to squander it anyway.

I was also reminded of my recent tax filing where I had to disclose a large amount of details of my foreign bank holdings and my assets overseas in excruciating detail. None of this has anything to do with the U.S. as the income and assets aren't earned in the U.S. And yet I have to pay taxes on those incomes in the U.S. If I even made an inadvertent error, I could be in jail, not just fined.

As the U.S. loses its grip on the world, it is reacting in a very draconian fashion and is implementing ridiculous regulations to control the citizens and its activities overseas. Under the guise of catching tax evaders, it is forcing a lot of regulations on citizens. One possible outcome could be capital restrictions in the future as the fiscal situation in the U.S. gets worse.

While I am not yet recommending renouncing U.S. citizenship (unless you have as much as Saverin has to lose), I would recommend you observe the violation of your personal liberties that is occurring regularly. Think about the fact that the U.S. taxes its residents and citizens on worldwide income while most countries only tax income that is generated in the country in which you reside.

Diversifying your investments overseas strategically will allow you to dollar-cost average your investments out while you take your time to decide when you have had enough and want to exit the clutches of draconian laws.

Think about investing in Singapore, Chile, Brazil, Vietnam, and many such destinations.

Several of these countries are great to live in and offer residencies rather quickly.

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