Geographic Diversification - Q and A Thread

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Geographic Diversification - Q and A Thread

Post by craigr » Sat Nov 05, 2011 3:30 pm

I think geographic diversification is the black sheep topic of the Permanent Portfolio. Many people think it is crazy, but secretly they all want to know how to do it.

--

In order of geographic diversification for gold we have these levels:

1) None - ETF that holds the assets in a commodity warehouse. Risk is that the asset is not available or easily seized during an emergency.

2) Physical gold and maybe an ETF for ease of rebalancing. Plus is you hold some physical asset outside the banking system. Minus is you need to protect against theft.

3) Physical gold and a financial product that stores the asset outside the country. This could be physical with a fund like CEF that stores assets in Canada. Or maybe an ETF like SGOL that stores it in Switzerland. Plus is you have some diversification against natural or manmade disasters in the US. Minus is a government emergency could still force repatriation of assets against your wishes.

4) Physical gold and a gold storage service like Perth Mint, Gold Money, Bullion Vault that (claims) to store physical gold on your behalf overseas in segregated or pooled storage. Plus is geographic diversification is much stronger. Minus is you basically have a service standing between you and the asset and there are risks it won't be there due to shenanigans on the backend (although Perth Mint is guaranteed by the Western Govt. of Australia and others may be insured as well).

5) Physical gold and segregated gold storage at a Swiss Bank. Plus is that this is the, pardon the pun, gold standard. Swiss banks, despite the bad publicity of late, are still not willing participants in breach of financial privacy. They are unlikely to comply with blanket orders to repatriate or freeze assets (but will do so on individual basis for criminal offenses). Minus is that many of these banks no longer want to deal with Americans on any level due to IRS encroachment.

In the past it was relatively simple to get to the Level 5 side of things. The Zurich Kantonal Bank in fact use to offer gold storage services for an outstandingly low fee of 0.55% a year. This is only about 0.1% more than a gold ETF and you'd have authentic gold storage in Zurich by a bank insured by the Canton of Zurich. Alas, they no longer want Americans there as of a couple years ago and this great option went away.

---

Let's discuss:

What topics around geographic diversification interest you the most?

What strategies have you looked into and/or implemented to get it?

What concerns you about the idea of geographic diversification that are maybe holding you back?

What would you do differently for those of you that did implement geographic diversification?

What questions would you like answers to about the topic in general?

Inquiring minds want to know. Post your thoughts and let's trade ideas.
Last edited by craigr on Sat Nov 05, 2011 3:33 pm, edited 1 time in total.
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Re: Geographic Diversification - Q and A Thread

Post by AdamA » Sat Nov 05, 2011 5:05 pm

Great questions.  Also, great insight regarding the "black-sheep" mentality behind geographic diversification.
Strikes me as true.

I am a big fan of physical gold, and use option 3.  

The reason I have not geographically diversified is that I don't understand what it adds to my portfolio.  

1.  What can I do with gold stored outside of the country that I can't do with gold that I have here?

2. If I did feel the need to store some gold in another country, which one?  Why does it matter that Swiss Banks are hushed mouth about who holds what?  I'm not laundering money.  Why not Canada, the UK, Australia, etc?

Having said that, I have looked into opening a Canadian bank account.  It's as easy as walking in and asking.  They're basically the same as US banks, and there are some that will let you deposit your money as US dollars.  They have safe deposit boxes, the same as here.
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Re: Geographic Diversification - Q and A Thread

Post by MediumTex » Sat Nov 05, 2011 8:20 pm

For a U.S. investor, one topic I would like to know more about is Canadian options for geographic diversification.

I think that a lot of U.S. investors like the idea of being able to drive across the border if necessary to check up on a portion of their portfolio, rather than fly halfway around the world.
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Re: Geographic Diversification - Q and A Thread

Post by dualstow » Sat Nov 05, 2011 8:49 pm

Hah, well I think "black sheep" is a bit strong. It's just that geographic diversification is not a high priority for me. I'm lazy to implement it, even if I like the idea and have enough relatives spread throughout the U.S. and Canada to make it happen.

I do appreciate the tips, though.
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Re: Geographic Diversification - Q and A Thread

Post by murphy_p_t » Sun Nov 06, 2011 1:20 am

I'm interested in gaining international diversification of my brokerage account (to hold VTI & part of VP overseas). I came across something from Casey Research mentioning, amoung others, swissquote.ch  being available to Americans. I'm looking for thoughts on this firm or similar.

I have also read about owning (mining) shares traded on a foreign exchange as a way to gain some international diversification... how beneficial is this if the shares are purchased thru a domestic brokerage account?

I have more questions than answers...
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Re: Geographic Diversification - Q and A Thread

Post by MediumTex » Sun Nov 06, 2011 9:08 am

On the subject of geographic diversification, if you don't have a passport you should get one.

It's an easy thing to do and just involves some forms, a fee and some waiting. 
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Re: Geographic Diversification - Q and A Thread

Post by WildAboutHarry » Sun Nov 06, 2011 9:28 am

I'm a fan of Central Gold Trust (GTU).  Canadian storage, favorable tax treatment for taxable accounts, etc.

One downside is the fluctuation between premium and discount (more of the former, much less of the latter).
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Re: Geographic Diversification - Q and A Thread

Post by craigr » Sun Nov 06, 2011 9:36 am

Of the Gold EFS, I think the best is from the Canton Bank of Zurich (ticker: ZGLD). They run a gold ETF under the Swiss banking laws. It requires physical gold to be present for depositor's assets. Last I read the (translated) prospectus, you could show up at the branch and even claim the gold if you could prove ownership of shares. Problem is I don't know if it is traded on US exchanges.
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Re: Geographic Diversification - Q and A Thread

Post by l82start » Sun Nov 06, 2011 10:34 am

does any body here know what effect having duel citizenship has on keeping foreign money, taxes etc? especially regarding a Canada/US duel citizenship?
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Re: Geographic Diversification - Q and A Thread

Post by AdamA » Sun Nov 06, 2011 11:02 am

l82start wrote: does any body here know what effect having duel citizenship has on keeping foreign money, taxes etc? especially regarding a Canada/US duel citizenship?
My parents are dual citizens. 

I don't know the exact details of my father's tax situation, but I know it gets a little complicated.  If you have specific questions, let me know and I'll ask him.
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Re: Geographic Diversification - Q and A Thread

Post by l82start » Sun Nov 06, 2011 11:16 am

do they pay American taxes on money that is in Canada or Canadian taxes on money that is in the US?
or does it get separated in to Canadian taxes only on Canadian investments and American taxes only on American investments?
or does your second country's taxes only apply if the money is transferred from one country to the other? and if you do transfer do you get double taxed?
does it make a difference which country you reside in?

if i was going to diversify geographically i would probably use Canada, i am wondering if it makes more sense to do so as an American or try to establish duel citizenship
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Re: Geographic Diversification - Q and A Thread

Post by AdamA » Sun Nov 06, 2011 11:36 am

l82start wrote: do they pay American taxes on money that is in Canada or Canadian taxes on money that is in the US?
or does it get separated in to Canadian taxes only on Canadian investments and American taxes only on American investments?
or does your second country's taxes only apply if the money is transferred from one country to the other? and if you do transfer do you get double taxed?
does it make a difference which country you reside in?

if i was going to diversify geographically i would probably use Canada, i am wondering if it makes more sense to do so as an American or try to establish duel citizen ship
Let me email him your questions.  He has income streams from both countries, and should have the answers.  May take him a week or so to get back, but I'll definitely let you know.
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Re: Geographic Diversification - Q and A Thread

Post by l82start » Sun Nov 06, 2011 11:37 am

thank you
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Re: Geographic Diversification - Q and A Thread

Post by AdamA » Sun Nov 06, 2011 11:52 am

I'm still curious to hear why geographic diversification is important.  

I know the reasons that HB gave...


Don't allow everything you own to be where your government can touch it. By having something outside the reach of your government, you'll be less vulnerable — and you'll feel less vulnerable. You'll no longer have to worry so much about what the government will do next.



...and I agree with them in theory, but what is the reality?

If the government starts confiscating gold or freezing financial assets in brokerage accounts, or whatever, how does having gold in a foreign account help me?  
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Re: Geographic Diversification - Q and A Thread

Post by craigr » Sun Nov 06, 2011 12:08 pm

Adam1226 wrote:If the government starts confiscating gold or freezing financial assets in brokerage accounts, or whatever, how does having gold in a foreign account help me?  
Other reasons:

Natural disasters that shut down large parts of the financial sector.
Manmade disasters that do the same.
Massive cyber attack that affects your electronic records at a domestic brokerage.
Etc.

To answer your question though: "If the government starts confiscating gold or freezing financial assets in brokerage accounts, or whatever, how does having gold in a foreign account help me?"

It helps you because you have options other people do not. One of those options may be simply to leave and start over.

Another option is to drag your feet for as long as possible. During a currency crisis time is your friend. The longer you can keep your money out of the domestic currency the better chance you have of surviving it. This is because currency problems happen rapidly and government responses will be knee jerk and immediate. They won't wait around to take major action because some small percent of the populace is refusing to repatriate assets and ties things up with an attorney. Even being able to stall 30-60 days could be enough time to come out OK.

Another option is if you suspect disaster and capital controls are coming, to go to the country where the assets are stored and remove them and use them to buy real estate in that country or other real assets in that country. It is easy for the government to order repatriation of liquid assets, but I'm not sure they'd have as much luck demanding people sell real property overseas. Even if they did do this, you again get a useful delay in complying because getting rid of real property is harder. Plus you can rent out that property and get an income stream and this slows things down further because now you have local tenant laws to deal with.

Lastly, when you put money overseas you are now entangling another legal jurisdiction into the process and that jurisdiction may not comply. So instead of you vs. the govt. it would be the govt. vs. another govt. For instance I find it hard to believe that a country like Switzerland would allow a blanket repatriation of assets to happen. They might, but I suspect so many people would file suit in Swiss court that the process would be delayed for quite a while. The govt. of Switzerland may even freeze the accounts until it was all resolved therefore providing a defense to account holders against forced repatriation. The account holders could simply say that they'd love to comply but the Swiss govt. is refusing all requests to shut down accounts and bring the money back.

Who knows?

But the main thing is you have options. Instead of keeping it all in the US and waking up one day to find out an executive order was signed overnight freezing all US banking assets, etc. You will have the ability to respond to defend yourself against extraordinary acts that are happening where you reside.
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Re: Geographic Diversification - Q and A Thread

Post by craigr » Sun Nov 06, 2011 12:14 pm

And, for the record, I think it is very likely the people in upper echelons of power of most countries all have some assets overseas.  ;D
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Re: Geographic Diversification - Q and A Thread

Post by AdamA » Sun Nov 06, 2011 12:18 pm

Craig--

Thanks for the great answers.  Still have a couple of questions.

1.  Doesn't physical gold ownership address most of these issues (outside of gold confiscation)?

2.  How do you pick the country?  Canada would be very easy, but I have no idea if it offers the type of diversification that would make it worth the extra hassle.

I'm not trying to be stubborn.  I am definitely fall into the category of someone who thinks it's crazy, but "secretly" wants to know how to do it.
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Re: Geographic Diversification - Q and A Thread

Post by craigr » Sun Nov 06, 2011 12:39 pm

Adam1226 wrote: Craig--

Thanks for the great answers.  Still have a couple of questions.

1.  Doesn't physical gold ownership address most of these issues (outside of gold confiscation)?
I think having some physical gold you have close control over is important. But (hopefully) your portfolio will grow large enough that this will become logistically impossible eventually. It will probably be safer to store some at a bank somewhere away from you as a backup reserve in case something very bad were to happen where you lived and you needed to leave or delay things until the problem works out.
2.  How do you pick the country?  Canada would be very easy, but I have no idea if it offers the type of diversification that would make it worth the extra hassle.
I still think Switzerland is best. Unfortunately it use to be quite easy to setup an account, but the last few years it has become very difficult because many of the banks simply don't want to deal with US clients (even high net worth clients). There are new intermediary services being offered though. But some of the minimums are still too high for most people.

Canada actually has a lot of good attributes, but the fact that they are a neighbor and generally bend to the will of Uncle Sam on most matters makes them less optimal for me. Switzerland still continues to be very reluctant in these matters. People assume that it's because they like harboring tax cheats, criminals, etc. But this isn't the case. I know swiss bankers and to them it's an ethical question. In Swiss culture and law it is simply viewed that your financial matters are your own business as is the tax matter between you and your government. They do not want to get involved. In many ways they also view financial privacy as a fundamental right to every individual. As abhorrent as Americans may view a despotic regime censoring critics and imprisoning political opponents, the Swiss I know think exactly the same way over these banking matters. They do not understand why Americans put up with the government doing these things. That's the best way for me to express it.

The above is why I think Switzerland is still tops. They simply do not have a culture that is compatible with the idea of government poking their nose in everyone's business and stealing stuff that doesn't belong to them. So I do not know how they'd truly react to a blanket repatriation order for instance, but I suspect they aren't going to go along quietly. Certainly they are going to resist a lot more than an American bank where you store your assets. 
I'm not trying to be stubborn.  I am definitely fall into the category of someone who thinks it's crazy, but "secretly" wants to know how to do it.
I totally understand. I am bringing up this topic because I want to explore the ideas and collective inputs of what other people have tried, what worked and what they would like to do but don't know how. I get the feeling many people would like to store some money overseas but don't know how to do it easily and safely. But this is becoming a lot harder. The new IRS FATCA rules are going to make it even more difficult to hold assets overseas even if you are fully compliant with all IRS disclosures. The banks may simply not want your business due to the hassle.
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Re: Geographic Diversification - Q and A Thread

Post by CA PP » Sun Nov 06, 2011 12:46 pm

I would nt count Canada as a serious geo diversification. The probability the gov of Canada would comply to US requests regarding US-held accounts is around 100% though you may get a few days (weeks?) head start!  Canada is an extension of the US nowadays.

Sorry to break the party.
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Re: Geographic Diversification - Q and A Thread

Post by AdamA » Sun Nov 06, 2011 12:57 pm

Craig--

Thanks for taking the time to explain.  Posts like this are what make this website such an asset. 
CA PP wrote: I would nt count Canada as a serious geo diversification. The probability the gov of Canada would comply to US requests regarding US-held accounts is around 100% though you may get a few days (weeks?) head start!  Canada is an extension of the US nowadays.

Sorry to break the party.
CA PP--

I agree.  That's why I haven't done it.
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Re: Geographic Diversification - Q and A Thread

Post by AdamA » Sun Nov 06, 2011 1:00 pm

Here's an idea that I think is interesting (although, as the author acknowledges at the end of the article, there is an obvious disadvantage).

Curious to hear opinions.

Many people understand the need to move some money out of their home country but are simply unable to take a far away trip just to open a bank account.  If you’re one of these people, here’s an easy back door. It’s less than ideal, but it works.

The first thing you need to do is pick your banking jurisdiction, i.e. Hong Kong, Singapore, etc. and then find a large multinational bank in that jurisdiction that has a branch near you.

As an example, I will use Hong Kong and HSBC… though there are other jurisdictions and banks that you could use as well (Standard Chartered, etc.)  HSBC is a good example because it has a presence in more than 60 countries, and you’d be hard pressed to find a civilized place that does not have a branch.

Among HSBC’s many branches are offices in Los Angeles, Miami, Vancouver, etc. So first you call HSBC in Hong Kong, explain that you are a foreigner, want to open a bank account, and would like to certify all the paperwork through your local HSBC branch.

The HSBC rep in Hong Kong will fax you all the appropriate paperwork, and when you have completed the documentation requirements, you should get in touch with the nearest HSBC branch in your home country and make sure they have “international banking services”? available.

Let’s say you live in Orlando… that means you should head down to Miami, and the Miami branch will validate all the documents on behalf of the Hong Kong office.

Afterwards, the Hong Kong office will receive the documents and finalize the account opening.

This is the fastest and easiest way to open a foreign bank account without actually having to fly to a foreign country and go through the process on the ground.

The obvious disadvantage is that many people do not want to deal with a large, multinational foreign bank like HSBC, Standard Chartered, etc. I agree; it’s better to deal with a solvent local bank that does not have a large international presence.

However, unless/until you are able to get on a plane and fly to Asia, Europe, or the Middle East, this is one of the best and most cost effective interim solutions.

To be clear, even though you are opening it through a local branch in your home country, the bank account will be considered foreign and based in the offshore jurisdiction that you chose. If you are a US citizen, this obliges you to file US Treasury form TDF-90-22.1 by June 30 of each year.
Here's the link with the full article.

http://www.sovereignman.com/finance/a-s ... k-account/

(I only posted a portion of the article, so I hope there's no copyright issue...).
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Re: Geographic Diversification - Q and A Thread

Post by craigr » Sun Nov 06, 2011 1:09 pm

Adam1226 wrote: Here's an idea that I think is interesting (although, as the author acknowledges at the end of the article, there is an obvious disadvantage).

Curious to hear opinions.
The ideal overseas bank should have NO offices in the US at all. They should also be doing very little direct business inside the US. By having an office or operating large parts of their business here they open themselves up to US coercion. UBS screwed up by buying Paine Webber and having a large presence in the US. When they were accused of enabling tax evasion the US simply threatened to shut down their US business operations, seize domestic assets, etc. until they turned over all customer account information.

The best banks in Switzerland are, IMO, Canton level banks. They generally only do business within a canton (which is the equivalent of a US State) and are usually owned and insured by the canton as well. They usually do limited business at all outside of the country so also will have no exposure to dumb things like Eastern European mortgages (UBS and Credit Suisse). Further, being owned by the canton you have the canton level government looking to protect them and this means Swiss government is also working in your favor.

The bad news is they probably don't want to deal with you as a US person and will require you to show up in person and present a lot of documents to open an account. The good news is that you can use an intermediary today to open and manage the tax reporting of a Swiss account (and there are companies in Switzerland starting to do this for US customers). However you want to be sure they are storing the gold at a canton bank with absolutely no US presence if you can do so.

So this article is fine for what it is, but there are exposures still and I'm not sure it will offer any more protection than having a domestic domiciled account. But it may help. Hard to say.
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Re: Geographic Diversification - Q and A Thread

Post by craigr » Sun Nov 06, 2011 1:22 pm

Clive wrote:
craigr wrote: Of the Gold EFS, I think the best is from the Canton Bank of Zurich (ticker: ZGLD). They run a gold ETF under the Swiss banking laws. It requires physical gold to be present for depositor's assets. Last I read the (translated) prospectus, you could show up at the branch and even claim the gold if you could prove ownership of shares. Problem is I don't know if it is traded on US exchanges.
I recall reading something about swapping shares for gold at the bank can only be made in bars (i.e. a lot of $) and the bars might be un-proofed (so you might incur additional charges for having the gold content verified and re-cast/proof stamped).

From http://www.topstockanalysts.com/index.p ... recommend/ In theory, any broker can buy these ETFs (my readers have told me that Scottrade is able to buy them, and Schwab cannot)
I probably need to buy a share of ZGLD and see what happens. Perhaps it is registered now in the US for trading. I do agree that of the ETFs for gold, the Zurich Kantonal Bank is probably the one I'd trust the most.

As for the gold bars, I don't see any way that the Canton Bank of Zurich isn't using Good Delivery Bars. If you take custody of the bar however the bank will charge an assay fee if you wish to re-deposit it. This would be standard procedure for any bank handling gold metal accounts.
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Re: Geographic Diversification - Q and A Thread

Post by l82start » Sun Nov 06, 2011 1:22 pm

craigr wrote:
Canada actually has a lot of good attributes, but the fact that they are a neighbor and generally bend to the will of Uncle Sam on most matters makes them less optimal for me.
this may be a good reason to go the duel citizenship route, i doubt they would mess with an account opened as a Canadian citizen just because you happen to also be American (if they even new it)
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Re: Geographic Diversification - Q and A Thread

Post by KevinW » Sun Nov 06, 2011 1:27 pm

I'm curious about the scope of geographic diversification that people use.  Is the idea to have a couple thousand dollars in a savings account as "bug out" money?  Or something like 1/3 of all assets?

If the foreign accounts hold cash and gold, do you count those toward your domestic PP?  If so how do you handle currency exchange rates?  Or do you build a full four-asset PP in the foreign country?  Do foreign banks transact in all four assets?

Does it matter whether the country in question speaks your native language?  Has anyone researched English-speaking, former UK colonies aside from Canada: Australia, New Zealand, South Africa, Hong Kong, etc.?  What about the Phillipines?  Or Caribbean banking centers?
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