The Advantages of Cross Jurisdictional DiversificationJul 12 • Categorized as Investments
by Jon Hanna
Don’t put all your eggs into one basket. The advantages of cross jurisdictional diversification can be plentiful.
Too many investors put all their eggs in one basket by limiting the investments into one country. No matter how diverse your investments can be (stocks, bonds, real estate, etc.) if all of them are based in only one country they can be subject to that country’s economic downturn. Look at the United States since 2008, when the global economic crisis began. Not only did U.S. real estate prices take a swift and severe beating, but so did other U.S. based stocks, commodities, municipal and other government bonds. Even some U.S. cities have filed for bankruptcy.
The global economic crisis has severely affected the European Union (EU) where, during the week of June 25, 2012, Spain and Cyprus became the 4th and 5th EU countries to formally request aid from the EU Bailout Funds. This means that 5 EU countries admit that they are insolvent and their banking systems are broke. Moody’s recently downgraded many of Spain’s banks. The Prime Minister of Slovenia recently indicated that his country may soon be the 6th EU country seeking help from the EU Bailout Funds. More EU countries are expected to join in later this year.
During the same week, the city of Stockton, California filed for bankruptcy. On June 29th, the Federal Reserve reported that foreigners are reducing their holding of U.S. Treasury Bonds.
Countries such as Kazakhstan, the Ukraine, and Turkey recently declared that they have purchased gold to protect their reserves. Chile along with a few more countries have agreed to avoid the U.S. dollar and settle all trade debts with China in Renminbi, which is the official currency of mainland China. In addition, China recently announced plans to create a special zone in one of its wealthiest cities, Shenzhen, allowing full convertibility and exchange of the Renminbi.
So, the U.S. and the EU are in trouble and the U.S. Dollar is losing its luster. What happens to the investors who only own investment assets in the U.S. or the EU? Diversified or not, if those economies falter so will most investments located there.
Cross Jurisdictional Diversification means diversifying your investments across different countries.
Beware of using just one fund manager. Cross Jurisdictional Diversification also means not putting all of your funds into one fund manager because that company could go bankrupt, simply close its doors and disappear, or be shut down by government regulators. If any of those should happen what will happen to your funds? A U.S. money management company called MF Global recently filed for bankruptcy reporting $1.6 Billion in missing customers’ funds. Don’t let this happen to you.
Geographical investments diversity makes sense. Putting all of your assets, your home, and your business under one government is putting all your eggs into one weak & frail basket. Wouldn’t you agree?
While I can’t recommend all of the countries you should diversify your investments into, I can recommend Panama for several reasons:
- Stability: Panama has had a stable democratically elected government since 1989 with no civil unrest or political instability.
- Economic Growth: In spite of the global economic downturn over the past four years, Panama’s economy has been steadily growing since 2005 with low unemployment, low inflation, and consistent GDP growth. Panama’s economic stability and consistent growth far exceeds the United States.
- Close to the U.S.: Panama is only a 3 to 5 hour flight from most major U.S. cities, including non-stop flights from Los Angeles, Miami, New York, Chicago, Atlanta, Houston, and Washington, D.C. There are even non-stop flights from Toronto.
- Foreign Investments Protected: Panama’s Constitution, Civil Code, and its Foreign Investments Act all guarantee that foreigners have equal rights to its citizens when it comes to commerce, property ownership, and investments.
- Panama offers some excellent investment opportunities including:
- Panama bank CDs, offer between 4 to 5% interest in USD.
- Panama credit union CDs, offer between 5 to 8% interest in USD.
- Panama corporate and government bonds, offer between 4 to 6% interest in USD.
- Panama reforestation investments, offering 2% average appreciation in teak hardwood values, plus land appreciation, in USD. Panama teak reforestation produced a return of 460% in the last 20 years or an annual average of 23%.
- Panama Pacifico area rental property investments, offering 7 to 10% CAP rates, in USD.
- Panama beach front lots, with average 10 to 15% annual appreciation, in USD.
- Panama agricultural land, with average 7 to 8% annual appreciation, in USD.
When diversifying your investments globally, consider Panama as a secure option.
Editors Note: For additional information on this and similar topics, please see www.premieroffshore.com