Yet its hard for Americans to invest multi currency portfolios abroad. US authorities place such stringent regulations on banks that have US clients that many overseas banks no longer open accounts for Americans.
This is likely to get worse because a federal has now authorized the IRS to use John Doe summons to request information from overseas banks about U.S. taxpayers who may be using Swiss bank accounts to evade federal income taxes. These summons are used to obtain information about possible tax fraud by people whose identities are unknown. This is unprecedented. How can a bank know if an account holder has hidden an account from the IRS?
There are still easy ways to invest in multi currency portfolios.
The first is buying shares in a global company that earns outside the US.
General Electric for example has huge non dollar earnings. More than half itscome from abroad. This is true of many US shares you can buy on a US stock exchange. IBM, for example derives 65 percent of its revenue from overseas. Sch a share is a multi currency portfolio unto itself.
Another multi currency tactic is to buy a mutual fund that invests only in non dollar bonds or shares.
Take the Dodge & Cox International Stock (DODFX) Fund as an example.
This fund invests in a diversified portfolio of medium-to-large non-U.S. equities. This billion dollar no load mutual fund had an average annual growth of over 24% per annum over the last five years. Investors can start with $2,500.
Overseas banks still provide extra privacy, asset protection and help investors access the greater currency experience in investing and lending that many non dollar bankers have.
Jyske Bank, Denmark’s second largest bank, for example has registered a subsidiary (Jyske Global Asset Management or JGAM) with the American SEC so it conforms to US regulations.
This is a tax neutral opportunity. American account holders must report income and earnings just as they would a US account. W9s must also submit if account holders invest in US shares, funds or bonds.
Yet beyond the tax man, investors have their assets away from prying eyes and held in a legal system that offers asset protection. Banking may be safer as well. Denmark is ranked by Moodys as one of the safest nations in which to bank.
JGAM’s service offers risk profiled portfolios ranging from low risk (LR) to speculative (SP) and with or without US dollar investments included.. JGAM managers use a top down global economic analysis that looks at markets and financial conditions around the world and recommend asset class allocations for each risk level. Then they select individual shares/mutual funds and exchange traded funds (ETF) for these allocations.
In all there are 17 portfolios opportunities each month. Investors, based on their risk profiles, choose what percentage they want in fixed income, equities, alternatives (commodities metals etc) and cash.
Here for example are JGAM’s latest multi currency portfolio asset allocation breakdowns.
Low Risk Multi Currency Portfolio: Fixed Income 70%, Equities 20%, Alternatives 5%, Cash 5%.
Medium Risk Multi Currency Portfolio: Fixed Income, 40%, Equities 50%, Alternatives 5%, Cash 5%.
High Risk Multi Currency Portfolio: Fixed Income 10%, Equities 80%, Alternatives 5%, Cash 5%.
Speculative Multi Currency Portfolio: Fixed Income 20%, Equities 60%, Alternatives 10%, Cash 10%.
Let’s look at the low risk (LR) portfolio in more detail.
Normally Jyske would recommend that 80% to 100% of low risk portfolios are in fixed income. Due to global inflation the managers are currently suggesting a tactical shift to underweight bonds, and overweight alternatives (commodities) and cash.
Then the JGAM managers offer a list of good value shares, bonds, funds and ETFs that investors can choose.
Each equity is ranked as low medium or high risk to help the account holder to further refine their asset allocation.
You can see the low risk portfolio list here.
A similar process is used for bonds denominated in eleven currencies, US dollars, euro, British pounds, Australian dollar, New Zealand dollar, Russian ruble, Brazilan real, Hungarian forint, Turkish lira, Icelandic kroner and South African rand.
This system allows investors to have multi currency portfolios that are custom fit to their circumstances and needs.
Now comes the interesting part about banking abroad….multi currency borrowing as well as investing.
For many investors, a multi currency portfolio is enough. However some want added leverage and Jyske’s system allows multi currency borrowing.
Jyske will accept the portfolio as collateral and lend to leverage the investments at the following interest rates, depending on the amount borrowed:
US$ 4.125% to 4.875%
Swiss franc 4.250% 5.000%
Japanese yen 2.500% 3.250%
Singapore $ 3.000% 3.750%
Jyske’s current loan recommendation is to borrow 50% Swiss francs, 30% US$ and 20% Japanese yen. At the median interest rate this creates an average loan rate of 3.58%. Such loans can have a magical impact on performance even with low risk portfolios.
Say that a low risk portfolio of $100,000 yields 5%. If $100,000 is borrowed, the portfolio now has $200,000 and at 5% earns $10,000 a year. Interest costs are $3,580, so the return on the $100,000 is bumped up to $6,420 or 6.42% instead of 5%.
If $200,000 is borrowed the $300,000 portfolio yielding 5% earns $15,000 a year with loan costs of only $7,160. That means the $100,000 now earns $7,840 or 7.84% double the yield without leverage.
When markets are rising such leverage can create spectacular profits in some of the riskier portfolios. In 2007, a Green Portfolio consisting of five environmentally oriented equities, that I created with Jyske’s help, using two times leverage, rose 266.23% in one year!
Plus in many instances a borrowed currency can lose value versus the invested assets so there is an extra forex profit.
Yet forex returns can result in losses as well. The leverage creates added risk and volatility. That same green portfolio that rose so fast, also dropped 100% in just a month during 2007 before rising again 150% in the next three months. Plus there are extra fees to think about when borrowing so always check with your banker first. Consider the added risk carefully and never leverage more than you can afford to lose.
You can get more information on Jyske Bank from Thomas Fischer, Senior Vice President at firstname.lastname@example.org
A rising global population and growing global economy creates stress on world resources and encourages inflation. The same demographic stresses also put downwards pressure on the US dollar and this creates even more inflation.
Fortunately the same technology that helps create these pressures also allows us to survive and prosper from inflation through multi currency investing.
P.S. Join me with JGAM at our next two International Investing and Business Made EZ Courses.
Enjoy the leaf change this October and International Investing and Business Made EZ North Carolina
Or enjoy our hotel in Ecuador in November and International Investing and Business Made EZ Ecuador