Thinking of Offshore Investing? Here Are Some Surprising Pros and Cons
If you earn more money than you spend, investing the extra is one of the wisest decisions you can make. In fact, according to the Department of Labor, even workers who earn limited wages can increase their wealth through basic investments. However, if you have a large amount of extra money, such as a settlement or inheritance, you may consider diversified investments, such as offshore accounts. Although it is often painted as a shady or illegal activity by Hollywood and the media, offshore investments are safe and lucrative for many investors. To help you make the right decision, below are some of the pros and cons of international investments:
Advantages of Offshore Investments
- Diversification. Offshore investments are more flexible than those in the United States. With an offshore account, investors have unlimited access to all major exchanges and markets.
- Secrecy. Many offshore investment institutions abide by strict laws that prevent them from divulging information about investors, such as their identities. This can be very useful to successful investors who don’t want others to follow their lead.
- Asset protection. Offshore accounts can also be used to eliminate asset vulnerability to lawsuits, creditors and other threats. By transferring assets to entities overseas, the investor protects the assets from seizure in the United States.
- Tax advantages. To attract outside wealth, some offshore jurisdictions offer tax incentives to foreign investors. Because of these advantages, taxes on offshore investments are often lower than they would be if the same investments were held in U.S. accounts.
Disadvantages of Offshore Investments
- Safety issues. Some companies that offer offshore investments are actually running scams to steal money from overseas investors. Because the crime takes place in another country, investors are often unable to file lawsuits in United States courts. Furthermore, even if the investor is able to win a lawsuit in the U.S., it may not be possible to enforce the judgment overseas. To avoid this problem, company verification is essential before any money changes hands.
- Lack of information. Overseas investment institutions may not provide investors with as much information as they need to make a sound decision. In addition, information that is provided may be in a foreign language.
- Market volatility. Foreign markets are subject to the same ups and downs as U.S. markets. In some cases, foreign markets may be even more unpredictable. Likewise, when currency exchange rates change, investors may lose money.
Tips for Investors
In spite of the disadvantages, offshore investing can be profitable. To reduce your risks and maximize your chances of success, try to find out as much as you can about an offshore account before you invest in it. For example, many companies file reports with the Securities and Exchange Commission. You can read these reports for free by visiting www.sec.gov/edgar.shtml.
You should also watch for signs of fraud when investing overseas. Tips for spotting investment fraud are available at http://www.sec.gov/investor.shtml.
Finally, if you aren’t comfortable choosing investment accounts on your own, consider soliciting advice from a trained investment broker. Brokers with experience in offshore investing can help you identify scams and choose the investments that pose the least amount of risk.
- Russell Barnhardt
Russell is a venture capitalist and investor.