Here you will find common questions regarding investments as well as questions that The Times and Warren Buffet recommend considering before investing.
How much money do I need to invest offshore?
There is no absolute low limit, but the extra costs of taking advice, opening new bank accounts, phone communication at a distance, etc., mean that offshore investment is unlikely to be worthwhile for less than say $25,000. Still, costs are coming down all the time because of the Internet. Offshore banks will take deposits down to $1,000, but for a personalised ‘private banking’ service, you will need to deposit $100,000 or more.
Why are investments regulated more than other types of purchase?
Regulation covers the avoidance of fraud (to protect investors from their own ignorance or cupidity), the avoidance of money-laundering (nothing to do with bona fide investors) and has prudential aspects, ie., it tries to prevent investment managers from making risky investments that could lead to loss for investors. Regulators believe that people’s savings are so important they must be given special protection.
What is money-laundering?
The conversion of ‘illegal’ money into ‘legal’ money. Thus, a drug-runner who walks into a Caribbean bank with $1m, opens an account, and the next day transfers the money into a Swiss bank account where he invests it into Nestle shares, has ‘laundered’ the money successfully. Nowadays banks are much more careful about accepting large sums of unaccountable cash.
What are the banking/investment options open to me as an expatriate?
As an expatriate, you really have your pick of the investment arena. A lot depends on the tax regime in your home country. But assuming that you are going to be non-resident for the duration of your absence, then nationals of most countries are in an ideal position, as expatriates, to take advantage of offshore financial services in a tax-efficient way.
In addition, many high tax countries offer attractive investment opportunities and tax breaks for non-resident individuals and entities. There are many different structures and services of especial interest to expatriates, so the determining factors need only be the size of your pocket and your inclinations!
I’m not interested in investing, I just want somewhere to keep my money safe. What type of structure would suit me?
If you have substantial liquid net worth that you would like to protect during your expatriation, and afterwards, then an offshore trust may be the way to go, along with offshore bank accounts. This type of structure is more used for asset protection purposes than for tax efficiency during your lifetime, as many high tax countries (for example the US) now have legislation designed to make offshore trusts at best tax neutral. However, the asset protection advantages, and the enhanced privacy afforded by an offshore trust, are useful features. Trusts are still effective as a defence against inheritance tax.
I move around fairly regularly – can I use the Internet to manage my portfolio/conduct banking business?
Of course you can! Increasing globalisation and advances in encryption techniques have meant that many offshore banks offer online banking services, which are ideally suited to expatriates. There are also an increasing number of exchanges and online brokers that allow you to manage your portfolio wherever you are in the world.
Recommended questions to ask yourself before investing, as listed by The Times Newspaper
What am I investing in?
Never buy anything that you do not understand. If your adviser cannot answer your questions satisfactorily, walk away.
Is my capital secure?
Structured product providers promise that if the stock market goes up they will enjoy the gains, but if it goes down their capital will be safe. However, thousands of people who invested in structured products underwritten by Lehman Brothers, the collapsed investment bank, are still waiting to recover their money.
How risky is the investment?
Banks are frequently accused of selling high-risk investments to those who are risk-averse. For example, Barclays sold the Morley Global Balanced Income fund, which is managed by Aviva, to cautious investors, but in July 2007 admitted that it was actually suitable only for “adventurous” investors. Despite this, the bank continued to sell the fund to risk-adverse customers for several months, including the elderly. Investors’ funds later fell up to 50 per cent.
What are the charges?
Always ask for a clear breakdown of all fees and charges, including commission paid to the salesmen or advisers.
What if the provider goes bust?
In the international Market you need to be very clear of what rights you may (or rather may not have), in the event of a company you invest in going bankrupt. In the UK, the Financial Services Compensation Scheme (FSCS) guarantees £50,000 per person in savings accounts, and up to £48,000 per person in investment products (100 per cent of the first £30,000 and 90 per cent of the next £20,000) if a company regulated by the Financial Services Authority becomes insolvent. The FSCS offers protection only where the product provider, not the underlying bank, goes bust. The Isle of Man also has a compensation scheme.
What are the tax implications?
Investment products are often sold on the promise of beneficial tax arrangements – discounted gift bonds for inheritance tax planning, or investment bonds for 5 per cent tax-deferred withdrawals – even if the investor does not pay income tax or fall within the inheritance tax threshold.
When can I access my money?
Investment bonds, structured products and with-profits all charge steep, and often opaque, exit fees if investors want to cash in their funds early.
Most funds will also have a clause that allows suspension of trading in extreme situations. Last year several insurers, including Scottish Equitable and Friends Provident, closed access to their property funds because there was not enough cash to meet demand.
Who is advising me?
Advisers in banks are usually salesmen with no qualifications in financial planning. A better alternative is an adviser with a diploma in financial planning.
Are all my eggs in one basket?
Investors should not put all their savings in one product. Diversity is key to spread risk.
Do I feel pressurised?
Many consumers may feel under immense and unfair pressure to move money into an investment when they visit their bank or building society branch.
Insist on a full written financial report that you can read through. Give yourself time to consider your options. If you are in any doubt, just say no.
Warren Buffet’s advice on what to look for in a reputable company before investing
- Does the company sell brand name products that are likely to endure?
- Is the business of the company easily understood?
- Does the company invest in and operate businesses within its area of expertise and does it have sound management?
- Does the company have the ability to maintain or increase profitability by raising prices?
- Looking at both long-term debt and the current position, is the company conservatively financed?
- Does the company show consistently high returns on equity and capital?
- Have the earnings per share and sales per share of the company shown consistent growth above market averages over a period of at least five years?
- Has the company been buying back its shares, and if so, has it bought them responsibly?
- Has management wisely used retained earnings to increase the rate of return to shareholders?
- Is the company going to regularly require large capital sums to ensure continuing profitability?