Why Wealthy Families are Choosing to Diversify Internationally

Wealth diversification has become an essential cornerstone in every high-net-worth individual's (HNWI) asset management plan. The idea behind diversification is to hedge against inflation, recessions, asset devaluation, currency instability, and economic turbulence. Diversification of assets is the foundation of the premise, but diversification of location is also critical, which is why many HNWIs choose to invest in assets abroad. Investing abroad can help mitigate localized risks, and HNWIs who choose to do so can create a global investment portfolio that is much more robust and can provide greater flexibility and security. This piece will cover the main reasons wealthy individuals choose to diversify abroad and how it can aid them in managing, maintaining, and enhancing their wealth.

Economic instability

Economic instability, whether local or global, can make a major dent in one's wealth. This is highlighted by the massive inflation the world has had to deal with since the COVID pandemic. In 2022, global inflation reached an average above 8%, marking it as one of the highest in recent memory. That high inflation created an economic tension felt throughout the world, and some countries felt it more than others. The EU had to deal with an inflation rate of 9.2%, well above the global average, while African nations like Sudan and Zimbabwe saw surreal inflation rates above 150%. Tackling economic risks by investing in local assets within a country that is dealing with massive inflation rates isn't a sound tactic. However, diversifying internationally is exceptionally beneficial in these cases. By choosing investment destinations with better value for money and stable economic growth, a person can hedge against inflation through astute investments that can yield higher ROIs while simultaneously providing less risk.

Geopolitical tension

Another important factor to consider is global geopolitical tensions. As fewer countries get along with each other and political blocks broaden their economic parameters, an investor may find their assets all locked up within one geopolitical area. By diversifying their assets throughout the global geopolitical spectrum, investors can mitigate the risk of political crises affecting their wealth. Sanctions and brutal financial regulations due to political instability may limit one's ability to move money around the globe, but if they have money outside of their country, then they have a way to circumvent these restrictions.

Local and global crises

Localized crises, such as internal conflict or economic depressions, can be mitigated by having assets outside of one's home country, but global crises, such as the COVID pandemic, require better thought-out plans. While a global crisis such as the pandemic may strain an individual's wealth, it also opens up investment opportunities, especially abroad. International investors who have a globalized asset portfolio are better situated to take advantage of these opportunities. A global investment framework provides greater investment flexibility and can lead to massive gains if a person utilizes it in the correct manner.

Tax and wealth management

By diversifying internationally, an investor can take advantage of a more favorable tax regime. In the Caribbean countries of St Kitts & Nevis and St Lucia, for example, an investor can diversify without having to worry about overbearing taxes. These two nations do not impose global income, wealth, inheritance, or capital gains taxes, making them an excellent place to expand one's asset portfolio. Choosing different countries with different taxation regimes and aligning them with double taxation treaties allows investors to alleviate their tax burden while simultaneously hedging against the risk of one government increasing taxes wildly. This is also beneficial for estate planning, as it allows investors to share as much wealth as possible with their dependents without having inheritance taxes take a chunk out of it. Both St Kitts & Nevis and St Lucia have citizenship by investment programs, so investing in them and utilizing their lack of inheritance tax combined with the status of citizenship is the ultimate estate planning method.

Individual sovereignty

Another important reason is obtaining individual autonomy. International diversification allows investors to break free from the rules and regulations of just one government. This enhanced individual sovereignty gives HNWIs more freedom and privacy, allowing them to protect and enhance their wealth as they see fit. Combining international asset and wealth diversification with global mobility solutions such as second citizenship or residency permits greatly enhances a person's autonomy, providing them with unparalleled control over their wealth and movement. This premise aligns extremely well with cryptocurrency investments, as they both operate on a globalized, freedom-based concept. Individual sovereignty is the best way to hedge against political and economic instability, and it is essential for any global investor. To know more about global diversification and individual sovereignty, contact us today to speak with an expert.