There is a misconception that the diversification of assets, especially the international diversification of capital, is worth doing only to very wealthy people. Even millionaires sin with the thought that asset diversification is only for multimillionaires and billionaires. However, the truth is that diversification is necessary not for a rich person, but for a reasonable person, regardless of the size of his condition.
When it comes to capital diversification, one gets the impression that people always believe that this concerns someone else: “This is not available to me” or “Not necessary.” And after 5 minutes they swear at the government, bankers, and corporations, which raise taxes, prices and reduce the quality of services.
Why do we need diversification? How can protect your assets? How to use it for your own benefit? About this all – below.
Capital diversification: Why diversification?
Greece, 2015 Crowds of people stand in a long line at a bank or ATM. Some of them need to pay for an apartment. Someone – for gasoline. And someone just wants to eat. As soon as the card goes to the ATM, they learn that, despite the number of funds in the account, today they can only withdraw 70 euros.
Nothing remains but to withdraw these 70 euros and get the wishes of a good day. But today is not as bad as tomorrow: the ATM ran out of money and no one knows when they will deliver the next batch of cash. Banks just closed the door and did not respond to calls.
What to do? How to live?
A similar situation was in Cyprus in 2013. But there is even worse because the funds are not just frozen, but also “trimmed” by taking a tax on large deposits. The same situation will easily develop in any European bank since Europe has officially adopted the “haircut deposits” for the official policy in the banking crisis.
And for the “enlightened Europe” repeat other countries.
Therefore, there are enough reasons to diversify, and these reasons concern not only wealthy people with billions of dollars but also an ordinary rational person who is responsible for his own life. It is easy to blame the government for short-sighted policy, but food, gasoline, and security do not give such accusations.
Capital diversification allows to level risks, relieve tension in crisis situations, to provide a zone of comfort and safety.
Even a small child can diversify, who does not immediately eat up all the candies, but puts a couple of pieces at the end of the week to eat while watching cartoons. Can diversify a teenager who invests part of the pocket money in the bank or in the resale of ballpoint pens. Can diversify the business owner who accumulates the profits of his company or dividends in the Bank of Singapore.
Diversification works on two fronts at once: it acts as insurance for an unforeseen event (crisis, unrest, unemployment, etc.), and as a new field for investment, growth and wealth (there are so many opportunities in the world that cannot be heard home country by people).
Capital diversification: varieties
Diversification can be different: it can be local when you put your assets in different banks, and you hide part of the funds in the form of cash under a pillow.
It can be international and then you open accounts abroad. Depending on the size of your capital and goals, your foreign bank account is located in Singapore, Hong Kong, Germany or Switzerland.
It may be different types of capital: deposit, cash, gold, shares of companies.
Let’s look at what each type of diversification gives and what it makes sense to count on in case of a crisis.
Diversification in one country. If you decide that it is better to keep deposits in 3 banks than in one – you are right. Moreover, different banks have different reliability and different interest on deposits.
However, there is only one problem: if the country is affected by a serious banking crisis, then not one bank will become a guarantee of security. It’s like in Cyprus or in Greece: regardless of the amount of capital, bank holidays are introduced for everyone. Ordinary people suffered.
International diversification. If you open 2-3 foreign accounts, then you are already making more sense. At the same time, we will again make a reservation that it is better than the accounts be not only in different banks but in different countries and even regions. If the collapse happens in Europe, and your account in Germany, despite the strength of the economy of this country, is a great chance to suffer.
This option for the price and feasibility is very attractive. To open a foreign account you usually need from 100-200 euros. True, if you want an account in Switzerland, then count on much larger costs and a minimum deposit. But there is a choice.
It is important to supplement one more thing: each account must be opened for some purpose. If your goal is to accumulate, then one option will do; if you achieve the maximum anonymity available in the modern world, then the other. And this also affects the price and the minimum volume of deposits.
Diversification between different types of assets. The classic deposit has its limitations. Today, these are low-interest rates (in some cases zero or negative), the problem of inflation, and currency risks. Therefore, it is worth thinking about the choice of assets themselves.
Of course, the first thing that comes to mind is cash. And this is an absolutely reasonable and logical step. Experts, from financial to those involved in extreme survival in the post-apocalypse era, talk about the necessary cash pool. Funds for 3-6 months of ordinary life is enough to survive the most acute moments of the crisis or just take a plane ticket for the whole family and get away.
Where to store? Under the pillow (not very safe), in the safe (costs, you need a good safe, but very convenient), in a safe deposit box (convenient, moderately safe), in a private vault abroad (very safe, but it is not convenient). Consider this: in some banks in the United States have already banned the storage of cash in a bank cell (except for numismatic values). In addition, if you keep in a regular bank in your home country, in the event of a crisis, the cells can also freeze along with deposits.
Therefore, the most reasonable is the stock of cash at home in a safe and in a store outside the country. Just in case.
German banks are recommended to keep cash reserves
If we talk about long-term diversification, then a reasonable contribution is gold and silver. Precious metals with a 5000-year history have not failed yet, and even today they continue to be popular. Metals are also best kept in storage – our colleagues offer a choice of place in Switzerland, Singapore, and Hong Kong.
Also, assets can be investments in securities and companies. It is worth saying only that we are not talking about speculative transactions aimed at increasing the securities themselves, but at long-term returns in the form of cash flow, which will be independent of the state of the economy — insurance and income.
Capital diversification: expanding strategy
However, there is another misconception that affects diversification, they say, only money and their derivatives can be diversified.
In your opinion, only savings in the bank are your assets? Of course no!
Among other assets that are equally important for a healthy and thinking in advance person, it is worth remembering family, work/work, professional and friendly relations, freedom of movement, freedom of choice. It is they and the conscious application of these resources not only contribute to the subjective feeling of wealth but also happiness.
However, how can you diversify your family, you ask? Of course, we are not talking about polygamy or the creation of several families around the globe. We say that you and your family always have the opportunity to be where it is safe.
What tools are there for this? In part, these are the same assets that, in the form of money, you previously transferred to reliable banks and jurisdictions. But money is not always able to withstand social, political and even economic crises. Need something else.
Powerful additions are permits to reside in another country: a residence permit, permanent residence or even citizenship. The fact is that being a forced migrant, a refugee, it is difficult to obtain proper status, and in comfortable conditions. Even among the refugees from the Middle East that swept Europe, there are very wealthy individuals who did not think in advance about obtaining status in the EU or another part of the world. And now they have to wait for their turn in the camps and other not very pleasant places.
A prearranged site will ensure the diversification of such risks. Well, if you never need it, as insurance. But it will serve as an excellent addition to the freedom of movement, choice, education, and recreation.
A little separately here is obtaining a second citizenship. The second passport is one of the most valuable tools of freedom. Just think – only in the sense of travel without visas, the second passport can offer 50-100 new countries to visit. And this, if you do not remember about the acute crisis situations when you just need to sit down and go to a safe place.
The second passports have one serious problem: getting them is a long process. Naturalization requires at best 3 years but more often takes from 5 to 10 years. And at this time it is necessary to constantly reside in the territory of another state. Someone this option is interesting, but certainly not actively moving entrepreneurs, managers, and just travelers.
But the benefits of a second passport beckon. Is there an alternative?
Oddly enough – yes. This is called the “second passport for investment.” In this situation, you invest a given amount in the country’s economy (fund, real estate, business), and in return, you get a passport. Legal, valid, respected passport of another state.
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The deadline for such passports depends on the state and ranges from 3 months to 1 year. Cost – from the available $ 100,000 per person (Dominica) to 1-2 million euros (Malta, Cyprus).
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During the procedure, the applicant and his family will be checked and, if everything is in order, a passport will be issued. Often, even to come to a new country is not necessary.
And the family diversifies part of their risks with the help of a second passport.