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DON’T
PUT ALL YOUR EGGS IN ONE BASKET.
The Truth About Global
Investing and Why You MUST Consider It!
By GARY A. FERRARO
Contributed by Guardian
Trust Company (Asia) Ltd
IMPORTANT
WARNING: This article has been offered in good
faith by Investorsoffshore.com to provide assistance
to investors but does not constitute investment
advice or recommendations. Investors should not
rely upon the information given in order to choose
types or routes of investment but should make
their own independent enquiries before making
choices. Investorsoffshore.com has taken reasonable
care in researching and presenting the information
herein but makes no representations as to its
accuracy and accepts no liability for actions
taken or not taken as a result.
Nearly
all investors have heard the term “Global
Investing” or “Offshore Investing”
at some point during their quest for successful,
superior investment performance for their investment
portfolios. They have heard the stories and read
the news yet few investors really understand the
compelling, incredible benefits, advantages and
investment returns that can be achieved with global
investing and even fewer know where to begin and
who to turn to.
What
is Global Investing? Global Investing is a comprehensive
investment strategy focusing on the creation of,
execution of and monitoring of a well-diversified,
risk-tolerant, world-wide portfolio of investments
across a broadly diversified, balanced spectrum
of investment categories and asset allocations,
which includes both investments located within
and outside the country or residence of the investor.
Global
Investing takes into consideration the importance
of and relevance of, or lack thereof, different
geographic areas and markets of the world, societies,
cultures, social trends, financial systems, demographics,
economic and financial trends, industrial trends
and requirements, political trends, natural resources
trends and geology.
Investors
are often surprised to learn just how many products
and services they use which are NOT made in the
country where they are a citizens and/or reside.
The list of brand names would be long and quite
familiar. The MESSAGE learned is LOUD and CLEAR.
Virtually all investors are “Global CONSUMERS”
– yet not many are “Global INVESTORS”.
The
time has come for all investors to open their
eyes to and participate in the immense investment
opportunities the world's markets offer. If you
are not already actively engaged in global investing,
then you are hurting and diminishing your financial
and investment performance in a MASSIVE and DEVASTATING
way. To Survive and thrive as an Investor, you
will need a radical shift and new approach to
investing. The Solution is Global Investing.
The COMPELLING CASE for Global Investing is clear!
1)
OPPORTUNITY and CHOICE is DRAMATICALLY Increased.
1. Investors who put their money only in their
own country’s equity markets (stock markets)
are missing out on usually the VAST MAJORITY of
the world’s total investment market place
and total market capitalization.
2. These same investors also deny themselves access
to approximately 75% of the total equity/stock
market universe.
3. Many of the LARGEST industries in the world
are dominated by companies NOT domiciled in the
home country of most investors.
2)
DIVERSIFICATION and its CRITICAL importance.
While most investors tend to focus primarily on
domestic markets, there is a world of investment
opportunities beyond their shores. The importance
of diversification across different geographic
regions, diverse economies, financial systems,
societies and cultures, demographics, investment
styles, market caps and industry sectors has become
quite clear, yet most investors lack foreign exposure.
Through
a global investing strategy, individual investors
can gain exposure to the leading global companies,
world economies, business cycles, worldwide currencies,
stock-price valuations and obtain access to global
leaders in industry and government. The largest
and most sophisticated investors and financial
institutions have FOUR times the allocation to
international stocks and investments as compared
to the average individual investor. Not surprisingly,
this global investment allocation produces results
that are a MINIMUM of 20 PERCENT better than the
typical non-global investment strategy.
3)
RISK REDUCTION:
Global investing has been repeatedly proven to
demonstrate LOWER RISK. Despite the common misconception
and conventional wisdom that the international
markets are “too risky”, the facts
are that the greatest risk individual investors
are taking is to NOT be investing enough of their
portfolio (or any of it at all) – in global
markets.
Global investing also creates lower portfolio
volatility. When you invest and diversify globally
you actually REDUCE the risk to your overall portfolio.
This has been repeatedly PROVEN in studies which
show that investors holding both domestic and
global investments have consistently experienced
LOWER volatility in EVERY five-year period cycle
since 1974.
4) DIVERSIFICATION AWAY FROM THE NORTH AMERICAN
AND US INVESTMENT MARKETS.
For
a very long time the U.S. markets were heavily
invested in by global investors. The tide is now
turning and it is clearer than ever before that
any global investor who is TOO HEAVILY allocated
to investments in the U.S. markets is facing the
potential for catastrophic investment losses.
The US Dollar has fallen DRAMATICALLY against
most major currencies not only over the short
term but over the long term. In fact, in October,
2007 the US dollar reached its lowest point in
decades and the trend is “going lower”.
If your primary local currency is pegged to the
US dollar, you better watch out and take action
now. The US dollar is also regarded as a fiat
currency backed by the "Full Faith and Credit
of the United States of America" yet the
United States Federal Deficit is at an all time
MULTI-TRILLION DOLLAR HIGH.
Add to that such facts as: 1) the strong, steady
rise of Gold and Silver prices; 2) that Oil prices
are at all time highs; 3) that major countries
like Brazil, Russia, Germany, and China and most
of the Middle East have announced they are anti-US
dollar and are switching out of dollars into Euros
for financing and for conducting trade in oil;
4) significant reductions in foreign reserve holdings
of US Treasuries; 5) that the Middle East continues
to have tremendous instability and problems that
is NOT going away anytime soon; and, last but
not least 6) HUGE, SERIOUS problems in the US
housing and mortgage markets.
5)
DIVERSIFICATION AWAY FROM THE RISK OF DERIVATIVES.
Derivatives
are a ticking time bomb and the financial weapons
of potential financial mass destruction. The Total
global derivatives market is valued at a staggering
US $272 TRILLION based on recently available estimates.
This figure is more than SEVEN times the size
of the entire global economy. Even more disturbing
is the fact that of this total, nearly one third
of these derivatives (approximately US $77.6 trillion)
are held by and concentrated in only three American
Banks (JP Morgan Chase, Bank of America and Citigroup),
based on recently available estimates. Currently
only several banks hold most of it. Every investor
would be wise to thoroughly investigate if their
bankers are among the list.
6)
DIVERSIFICATION AWAY FROM THE RISKS ASSOCIATED
WITH MONEY SUPPLY, CREDIT AND DEBT.
Many
financial systems, like the USA, are a system
of debt created by the printing of money and the
creation of credit, which is essentially money
in digital form. This creation of credit is now
out of control in key areas of the world financial
markets, which will result in further devaluation
of certain currently important currencies like
the US dollar, the subsequent rising of inflation
rates, very likely real estate crashes in certain
markets, another highly likely stock market crash
of bigger proportions, a continued surge of personal
and business bankruptcies and a resulting domino
effect of bank and insurance company failures.
7)
PERFORMANCE.
Many
of the world’s best performing stock market
indices and mutual funds are NOT located in the
country of citizenship and residence of most investors
and the investment return of many of them is up
an astounding 1,000 plus percent. It is not unusual
at all for global markets to OUTPERFORM an investors
domestic markets. It is also not unusual for the
top ten companies in each industry sector to be
located outside of the country of citizenship
and residence of most investors.
Global investing also creates higher return in
relation to risk. Consensus from worldwide studies
has shown that a minimum 40 PERCENT global allocation
has given investors the highest return per unit
of risk. Historical data have also proven that
the optimal exposure to international stocks and
investing, as a means for reducing risk, has changed
very little over the years.
8)
VALUATIONS.
Very
often non-domestic markets have much more ATTRACTIVE
and REALISTIC Valuations. As an interesting example
the Price per Earnings Ratio P/E. of stocks in
the important China Shanghai A-share market is
much higher that the P/E of the very same stocks
listed on the Hong Kong Hang Seng stock market.
9)
DEMOGRAHIC TRENDS.
Non-domestic
markets for many investors have much more favorable
demographic trends. Currently these trends are
much more favorable in Europe and Asia, where
age and population peak there many years from
now. In contrast, the US population is an aging
society and has peaked, and there are fewer new
births. China and India are currently power house
markets of hungry, aggressive consumers.
10)
CURRENCY TRENDS.
Non-domestic
markets often have much more favorable currency
trends. For example, the US dollar continues to
fall both long term and short term against virtually
every currency of the world. The foreign currency
market is the BIGGEST market in the world yet
many investors do not take advantage of the potential
for investment profit that is inherent in this
huge market.
11) ASSET PROTECTION.
Very
often global investment using non-domestic markets
can assist an investor in achieving better asset
protection than if done domestically. Using proper
planning and legal structures like the Nevis-based
LLC (Limited Liability Company), IBC (International
Business Corporation) or Trust, foreign investments
can be made through these legal entities to achieve
many objectives including asset protection and/or
tax planning.
12)
TAX PLANNING.
Global
investment using non-domestic markets can often
assist an investor in achieving better tax planning
or tax deferral than if done domestically. Using
proper planning through legal structures like
the Nevis LLC, IBC or Trust, or by using foreign
variable life insurance or variable annuities,
an investor can create powerful potential tax
deferral and tax planning as well as asset protection.
13)
INTERNATIONAL TRADE AND BUSINESS.
Non-domestic
markets can assist an investor or business owner
in the profitable expansion and diversification
of their business activities to other markets.
In fact a business may find that it can build
greater revenues and profits by primarily or solely
selling its goods and services outside of its
domestic markets.
14)
SAFETY OF PRINCIPLE.
Non-domestic
markets can often provide greater safety for capital
or other tangible or intangible assets. The foreign
currencies of another market are often stronger
and more stable to conduct business and investments.
In addition foreign jurisdictions are often more
friendly and stable, including many banks and
financial institutions which are stronger, more
stable, have been around longer and have fewer
failures.
The
reality is that global investing offers unrivaled
opportunities for superior investment returns,
prudent investment diversification, lower risk,
potential tax planning benefits, potential superior
financial privacy, asset protection and estate
planning. The bottom line is clear -EVERY investor
should be investing globally.
About
the Author:
Gary A. Ferraro is the President
and Chief Executive Officer of Guardian Trust
Company, the Wealth Management Institute,
and the Kredit Privee’ Group of companies.
He may be contacted at Guardian Trust Company
via phone at 852-2251-8178 or via e-mail at admin@guardiantrustcompany.com
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