I’ve written about offshore accounts before, and I’ve detailed how they are a terrible choice for investors. Unfortunately, expats are beset by ads and publicity for them. This is because many expats live in countries that cater to the offshore account crowd, and many expats work in international financial centers like the Persian Gulf, Hong Kong, and Singapore. Financial institutions that offer these accounts figure that they might as well try to sell these accounts to their employees to make even more money.
Why are they bad?
The biggest reason they are bad is because they are often illegal. Many countries, particularly the United States, make it illegal for their citizens to own them, particularly if they are being used to hide wealth abroad in order to avoid tax. If you decide you must put money away in one of these accounts, check with an accountant or lawyer from your home country to determine whether it is legal. Most countries look down on offshore accounts because they are primarily used to avoid tax. Many of the biggest offshore account holders are dictators and criminals who are shifting money to safe refuges. Why be involved with those types?
Cash is a terrible investment
Cash is probably the worst investment you can put your money in. It is an investment that is utterly destroyed by inflation. Instead of putting your money into large sums of cash, you should put your money in a diversified portfolio made up of stocks and bonds.
But some of you are probably asking, what about taxes? The point behind offshore accounts is that you get to avoid taxes. Surely that would make offshore accounts a better “investment” than stocks and bonds?
I disagree. Stocks are the key to the growing of any portfolio. There are over 100 years of data from countries around the world showing that equities provide average annual returns far greater than bonds or bank accounts. Now those returns are not consistent, however over time as an economy grows, ownership of companies via stocks is the best way to gain the returns of an underlying country’s economic growth. Cash accounts have disastrous returns over time, even those accounts that avoid taxation.
Where should you put your money?
As I stated before, putting your money in cash accounts is a bad idea. The point of investing is to save for retirement. With that goal in mind, you should determine what country you wish to retire in, and then invest in the same currency as that country. And then you should make purchases in the most prominent stock exchanges and bond exchanges in that same country.
At no point should offshore accounts figure into your budget. While you do avoid tax with offshore accounts, you miss out on the returns gained from stock ownership. The expected gains from stock ownership are almost always greater than the tax liability of cash over time. Is that guaranteed? No, there is risk involved in owning stocks. But there is also risk with offshore accounts. They are only guaranteed by the solvency of the financial institution that issues them. If the bank you have your money in goes bust, you may lose it all. Unlike normal cash accounts, offshore accounts are far less likely to be backed by the government of the country they are located in.
