In response to our recent article about investing offshore, many readers asked for more information. They expressed many concerns, particularly about safety.
Jamie Virjhof, Relationship Manager ofWeber Hartmann Virjhof & Partners Ltd.recently interviewed me and addressed those concerns.
I have permission to share it with our readers.
Is International Diversification really necessary?
Dennis has been a good friend and client of WHVP for nearly a decade. We recently met at the Total Wealth Symposium in Las Vegas and felt his perspective and insight on offshore investing would be of true value to our readers. We asked Dennis if he would be kind enough to let us do an interview with him to learn from his experience.Dennis Miller’s recent article, “Should Investors Have Money Offshore?” raised the ever-important question whether you can really trust the government. Dennis elaborated how the government does not always have the best interest of their people in mind. This was one of the reasons why he decided to bring some of his wealth offshore.
Jamie: Dennis, thank you for taking the time to share your knowledge and especially your personal experience with our readers.
In the article “Should Investors Have Money Offshore?” you mentioned your lack of trust in the government. Was that the main motivator to move part of your wealth offshore? Were there other reasons playing a part in the decision?
Dennis: First of all Jamie, thanks for inviting me.
I take a strong stance on not trusting our government. I’d like to tell you what the circumstances were when I began my offshore journey.
I worked hard, played by the rules and saved enough money where my wife and I could live off the interest for the rest of our lives. Overnight, the government decided to bail out the banks by lowering interest rates. The slang term for their action was the ZIRP (Zero Interest Rate Policy). Our retirement income was cut by over 2/3. We could no longer live off the interest, we had to dip into the principal to make ends meet. I was angry and scared.
I’ve seen estimates that over $4 trillion in interest that should have been paid to seniors and savers was diverted to bank profits by lowering interest costs and reduction in government cost of debt. Ten years later the bottom 99% of the population have never recovered their losses. Every retirement and pension plan is still negatively impacted by our government’s decision.
The Fed chairman, Ben Bernanke referred to this as “collateral damage” – with little regard as to how their decisions impacted most Americans. In 1819, William Gouge commented on similar actions taken by the First Bank of the United States – “The Bank Was Saved, and the People Were Ruined!” 200 years later, things haven’t changed.
Jamie, I felt betrayed, what would they do next? We saw what happened in Greece where retirees’ bank accounts were frozen. Argentina has done some terrible things to their seniors and savers.
The second reason I went offshore – I was (and still am) very concerned about inflation. You don’t create trillions of dollars out of thin air without high inflation following. We never anticipated the central banks of the world coordinating their efforts to create some parity between their currencies. The basic law of economics has not been repealed; all that has done is delay the inevitable.
Having money diversified in different currencies offshore helps hedge against inflation of the USD. During that time, some politicians were talking about requiring retirement money to be held in US debt. Argentina did the same thing to their retirees in 2008.
I want no part of that, not only would it pay little interest, it would also offer no inflation protection for the USD. Like Argentina, high inflation could make our life savings worthless overnight.
Dennis: I went to some trusted experts for help. Switzerland’s history made it a no-brainer. The Swiss are world bankers and seemed to be, by far, the safest alternative. The Swiss bankers receive an excellent education and know what they are doing. Additionally, Switzerland has one of the most comprehensive insurance plans to cover deposits in case of bankruptcy of the bank.Jamie: Okay, so you decided it is wise to bring some of your wealth offshore. What made you decide on Switzerland? Did you also consider other jurisdictions?
Jamie: What were your main considerations when choosing the right asset managers? What were you looking for?
Dennis: I’d retired three years earlier. My goal was to make our money last through the rest of our lives. I wanted someone who understood my situation, was conservative and would protect our money. I didn’t want to deal with “get rich quick” asset managers.
While WHVP came highly recommended, I was a very reluctant client. I had a long list of questions. I needed to be sure my money was safe and would be invested conservatively. Another important issue for me was that the asset manager is registered with the SEC and compliant with all their rules and regulations.
Jamie: What is the best way to get to know an asset manager and get a feel for the company?
Dennis: Our discussion took place over several phone conversations. I was not able to fly to Switzerland. I was also proactive in asking questions. If I did not understand something, I felt it was your job to educate me. I’m a strong believer that investors should never invest in something they do not understand.
Once I did meet you, Rene and Rob face to face, I’ll confess that my comfort level improved a lot. I suggest prospective clients ask for your travel itinerary and try to schedule an appointment to meet you in the US and get to know you on a personal level.
Jamie: You have been with a Swiss independent asset manager for almost ten years now. What was your experience so far? Considering that you also have investment accounts in the US what is the main difference between the two?
Dennis: The positive side is I soon realized how much I didn’t know about worldwide investing. I continue to learn from your team today. Your world is much more complex than here in the US.
Our goal was to protect our investments from inflation through diversification of assets and currency. With my approval, you have invested a good portion in cash and interest-bearing instruments. In the current low-interest rate environment, the income has not been as much as we hoped for. I still would not change the allocation and gamble a higher percentage in the market.
You have a portion in gold stocks and they provide dividends. When the inevitable inflation kicks in, I suspect we will be celebrating. We have stayed the course.
There are three differences. The vast majority of our investments are in different countries, in different currencies. In Switzerland, we are invested in individual stocks and bonds; well diversified and conservative. The US accounts are in USD, including some mutual funds and exchange-traded funds.
As I said in my article, the “too big to fail” banks are now bigger and the debts are much higher than the last crash. Our government bailed out the banks at the expense of the people many times over the last 200 years. When the crash comes, who knows what the government will do? The goal of all politicians is to protect their power. I pay little attention to their talk and look at their behavior. I can’t afford another hit to my life savings like last time.
While I would love to see our account balance higher, you did what I asked and didn’t go off course. I feel much safer today. I look at our offshore account as insurance.
Jamie: What have you learned over the years that would have been helpful to know when you first started this offshore journey?
Dennis: Jamie, there is an old saying, “You can’t fight the Fed”. Who could have anticipated that banks worldwide would coordinate their efforts and create many trillions out of thin air to bail out bankrupt banks and governments?
Stocks levitated on fake money, not on solid earnings news. Last summer Bloomberg reported that ten stocks contributed 122% of the S&P 500 gain for the first half of the year. What happened to the other 490? I don’t call that a solid recovery. Companies are spending many billions buying back their stock to pump their share prices, not investing in assets anticipating business growth.
Jamie: Dennis, once again thank you for graciously taking the time to share your experience.
Dennis: My pleasure Jamie, thank you.
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