Checklist for canny offshore investing

*Gary Stringer
2013-07-22 16:00
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IF THE right person makes the right investment at the right time, we all know that riches will surely follow.

From Asa Candler's purchase of the Coca-Cola business in 1891 for $2 300 (the equivalent of $57 875 today) to Peter Theil's early $500 000 investment in Facebook - which eventually netted him a return of over $400m - it is usually success stories like these that encourage people into investing.

But what about when it goes the other way and your precious investment takes a hit? It's certainly not unheard of. The $20m invested in DigiScents, a company that hoped to make the web a stinkier place, will certainly never be seen again.

But don't despair. There are some simple questions you can ask yourself before investing that will go a long way to making sure your financial future is put into the right hands.

1. Is the investment good for you personally?

Every person is different, and so by extension everyone's investment goals and criteria are different. With this in mind it is important to not take investment tips from friends and peers at face value; what may seem like a good investment to them might be totally unsuitable for you.

This could be because of an overly long maturity period or restrictive rules regarding how much of your money you can withdraw from the fund in a specified period. A good investment is one that balances the investor's willingness to take risks with their ability to absorb losses.

2. Do you understand it?

This one seems simple enough, but you wouldn't believe the number of people who are happy to send their entire life savings overseas, without even being able to explain why they did so or how it works.

The litmus test for this is as easy as sitting down with a friend and explaining the investment to them in the same way that your financial adviser explained it to you. If you find yourself struggling to remember the facts or, even worse, bluffing the parts you aren't sure of, then it is a sure sign you need to go back and talk to your FA.

If after that you still can't fully explain the scheme, you can be almost certain that the investment isn't right for you.

3. Do you understand the charges?

What are the annual fees? What is the exit fee? What impact will the charges have on the results of the investment?

More important than understanding how the scheme or investment works, is understanding how your actions could affect your potential payout at the end. For bond-based schemes, early removal of your funds could result in
large charges or taxation and could also effect the rate of interest you receive.

You also have to take into account potential bond charges. These could be 1% or 2% per year as well as an annual fee. However, it's important to understand that the product with the lowest fees might not always be the best option. Higher fees may get you access to superior fund managers that will get you far better returns.

Often you get what you pay for.

4. Is the investment suitable for the term you are investing for?


If you are already an expat or have plans to move abroad in the near future, you will probably want to look at offshore investments. However, it's very important to take into consideration the amount of time your funds will be locked up for.

If you tie up your funds in an investment with excellent returns over five years but you are actually looking to invest for 20 years, then such an investment may be a mistake.

A competent financial adviser will work with you to ensure that you are investing for a term that is sufficient to bring you the desired returns.

5. Where is the fund incorporated and in which jurisdiction is it based?


The relationship between your country of residence and the jurisdiction you are investing in is very important. If you end up with the wrong combination of locations, you may be taxed twice on your earnings, once in the jurisdiction they are generated and once in the jurisdiction you are physically based in.

It is also important to avoid jurisdictions with withholding tax schemes, where tax is paid to local and foreign governments out of your earnings before they even reach your pocket.

Even if you have evaluated your pension and believe that it is safe, there are still a number of threats to your offshore investment. Here are five questions you should ask yourself to determine whether your offshore pension is protected.

 - Fin24

* This guest post is by Gary Stringer, a digital marketing executive with AccuraCast. Views expressed are his own.

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