3 Easy Ways to Generate Global Wealth

Nowadays, with just a computer or smartphone, you can buy and sell any financial asset traded on public markets in the United States. Plus, prices are updated in real time.

Nifty new platforms—like Robinhood, e^∗Trade, or broker-specific apps—can even help you manage your portfolio. With the click of a button, they’ll show you how your wealth is diversified across different categories of financial assets. They can even tell you how close or far you are from an ideal portfolio for someone of your age and financial status.

But there’s one thing missing from these new investing platforms: geographical diversification.

Oh sure, you can invest offshore indirectly with exchange traded funds (ETFs) and American Depository Receipts (ADRs) for foreign shares held by US banks. And some big foreign companies list on US exchanges directly.

But even so, the range of options is limited. And all of these assets are traded exclusively on US markets, priced in US dollars. There is a firewall between you… and all of the wonderful opportunities available in other markets.

The Dangers of Geographical Concentration

The good news is that this is an easy problem to fix, and I’ll show you how. But first, consider some of the downsides of concentrating your investments in one country’s markets… even if that country is the United States.

1. You pay more for comparable assets. You’re competing with other investors in the world’s most liquid market. With so many people chasing the same stocks, prices are bid up much higher than in other countries.

Indeed, it’s common for the price to earnings (P/E) ratio of a US company to be nearly double that of a comparable foreign business.

That means you’re paying far more for the same yield than you would if you diversified abroad. That drastically limits your potential upside.

2. You get no currency diversification. Even if you buy ADRs of a foreign company, it’s still going to be priced in US dollars.

If the dollar depreciates, you’re not going to get a boost from the corresponding increase in the money value of foreign assets.

For example, let’s say the dollar depreciates by 20% against the euro. If you own $5,000 worth of ADRs for a European company, the potential purchasing power of those ADRs will decline by 20%—$1,000.

But if you held that company directly, denominated in euros, your potential purchasing power would increase by 20%.

3. You’re overexposed to one set of political and economic risks. For decades, everybody wanted to be in the US market because the country and economy were stable compared to the rest of the globe.

But many investors now see the US as one of the riskier markets in the world, thanks to political dysfunction and associated economic risks. If the US government defaulted on its debts, for example, the value of Treasury bonds would collapse, destroying bank balance sheets and leading to bank runs. The value of stocks would collapse.

If worse came to worst, having all of your assets in the US could lead to catastrophe.

The bottom line: A prudent investor should do more than just diversify across asset classes. Diversify geographically, too.

Simple Ways to Diversify

If you go sleuthing on the internet, you’ll almost certainly get the impression international investments are reserved for the super-rich.

That’s not the case. Consider these examples, based on conversations I had at our recent Overseas Bootcamp in Denver, Colorado.

Holding Foreign Currencies the Easy Way

Claudia has been worried about the status of the US dollar for a while now. She keeps hearing about the threats posed by government deficits, and by alternative global reserve currencies. She resolved to move some of her money out of the dollar.

Although she’s traveled quite a bit, Claudia lives in the US and doesn’t plan to change that. But that doesn’t mean she has no access to currency hedging strategies.

After she explained her concerns to me, I introduced her to one of the exhibitors at the conference: Battle Bank.

Battle Bank is a brand-new outfit that will become available to new accounts in the next few months… and one of its key product offerings is a multi-currency account that allows you to hold money in dozens of foreign currencies.

For example, Claudia could move the bulk of her cash holdings into traditional safe-haven currencies like the Swiss franc, Singapore dollar, or the Japanese yen. If the dollar declines, she’ll be able to convert those balances back into more dollars than she used to buy them.

But Claudia’s approach doesn’t have to be just defensive. By holding currencies of up-and-coming manufacturing nations like the Malaysian ringgit or the Indonesian rupiah, she can position herself to benefit from the long-term rise in the value of those currencies.

Best of all, Claudia can do this in both an ordinary bank account and an Individual Retirement Account (IRA).

Battle Bank plans to offer IRAs that include multi-currency accounts. That means Claudia can protect her retirement funds from the dollar’s decline, too.

High-Quality Foreign Real Estate

Steve and Linda are genuine globetrotters.

They told me that since retirement, they’ve traveled extensively but haven’t decided on a specific location to settle in. But on their travels, they’ve seen incredible real estate deals… including those presented by our friends at Real Estate Trend Alert (RETA).

Some years back, Steve and Linda decided to take the plunge and buy a property in a new development on Mexico’s Caribbean coast.

By investing in the early stages of the development, they were able to get an excellent price—well under $250,000 for a beachfront condominium.

Once the project was complete, the market value of the condo increased by double digits each year.

At the same time, they’re getting a 7% to 10% yield on renting the unit when they’re not using it themselves.

They were so pleased with this investment that they bought another unit in Portugal.

That unit is also experiencing rapid appreciation in underlying value as well as excellent rental yields.

RETA handled all the complicated aspects—above all, scouting out the opportunity and negotiating the initial deal with the developers.

Now Steve and Linda have a diversified real estate portfolio spanning three countries, including their US properties.

Create a Foreign “Dirt Bank”

Allen had attended a conference in Punta del Este some years back, where I gave a presentation.

When he introduced himself to me in Denver, my first question was whether he’d taken advantage of the investment opportunities in that South American country.

He had. Five years ago, he invested in a farmland syndicate managed by a team of Uruguayan experts who’d also presented at the conference.

It didn’t require much work on his part. The Uruguayans gave him a prospectus with all the details, and once he had done his due diligence, he simply transferred the money and became a part of the syndicate.

This syndicate invested in commercial pine and eucalyptus plantations. They’re managed by commercial foresters on behalf of the syndicate owners.

Normally, forestry is a nine- to ten-year cycle between planting and harvesting, at which time syndicate members typically receive a 65% to 70% profit on their initial investment.

But the plantations also generate immediate yields in rentals, paid by cattle and mushroom farmers who raise their produce and livestock under and around the plantation trees.

Those yields average 7% to 11% a year.

So while Allen is still based in the US, his wealth and investments have been diversified into one of the most lucrative asset classes on the planet: high-quality farmland.

It’s safer than gold, and even better, it generates a handsome yield year after year.

It’s Allen’s very own “dirt bank.”

How You’re Going to Do It, Too

Claudia, Steve and Linda, and Allen all have one thing in common beyond diverse international assets…

At some point, they all took active steps to learn about global investment opportunities by attending conferences and the like.

I know just how difficult it is to pursue that in the bustle of everyday life.

“Diversify my wealth internationally” goes on a to-do list… but never quite makes it to the top.

I’ll talk about this in more detail in next month’s Global Citizen letter, but a great place to start is with the currency diversification Claudia achieved right here in the US.

It’s as easy as opening a domestic bank account at an institution that offers multi-currency accounts.

It’s a great way to get a taste of the benefits of international diversification… setting you up to take advantage of even bigger—and better—opportunities down the line.