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The Ultimate Layer Of Financial Protection

October 5, 2013

Recently I spoke with the always-insightful Nick Giambruno about the critical importance of internationalizing your retirement savings. It's an uncomfortable fact of life that governments that are desperate for cash inevitably find ways to siphon off the purchasing power of their citizen's retirement savings. Poland, which recently partially nationalized private retirement savings, is just the latest example of this disturbing trend, one that will likely spread to other countries that are in fiscal trouble.

This interview appeared in a recent issue of Miller's Money Forever, where you will find top-notch guidance on how to ensure that your retirement savings survive longer than you do—no matter what the economy does. 

Nick Giambruno, Senior Editor

I am delighted to have Nick Giambruno, the senior editor of International Man, in our hot seat this month. As you might have guessed, Nick is a real expert on all things international. From international real estate to international government regulation to international business, Nick is the go-to guy. While my passport is good for another eight years, I'm sure he has to replace his annually. So, without further ado…

Dennis Miller: Nick, welcome to Money Forever. Please tell us about your last trip. Cyprus, I believe?

Nick Giambruno: Thanks, Dennis. It's great to be here. Yes, it was Cyprus, with the original "International Man" himself—Doug Casey. Cyprus is the best recent example of how a desperate government acts and how internationalization can protect us.

As you are no doubt aware, on a seemingly ordinary Saturday in March when people least suspected it, the government of Cyprus quickly closed the banks, imposed capital controls, and announced the confiscation of customer deposits. Doug and I went to see the fallout firsthand. The in-person perspective was helpful for learning when and how the next Cyprus will occur.

Political Diversification Is a Universal Need

Dennis: Today I want to focus on the financial issues of seniors and savers. For the most part, our subscribers are staying put geographically. So why should they invest in international companies? Why use a broker outside of their home country? These ideas make folks in my generation squirm a bit. So tell us why seniors—even seniors with modest portfolios—should internationalize some of their assets.

Nick: Seniors, savers, and others depending on fixed, nominal incomes should definitely consider internationalizing a portion of their assets. They often suffer the most from the predictable actions any desperate government may take as its fiscal health deteriorates. That includes capital controls, wealth confiscation through currency devaluations, one-off emergency "taxes" on financial accounts—which occurred in Cyprus—nationalizing retirement accounts, and various other means.

It is incorrect to assume this couldn't happen in your home country. If history shows us anything, it's that it could happen in any country. That's why taking practical measures to protect yourself and your family is prudent.

These risks are particularly high under most Western governments, including the US. They have current debt loads and future spending commitments that all but guarantee that eventually they will try to unscrupulously grab as much wealth as they can.

This is why Doug Casey has said over and over that diversifying your political risk through internationalization is his single most important recommendation today.

Through internationalization, you place your money outside the immediate grasp of your home government. This diversifies your political risk. When wealth is outside of its immediate reach, it is much more difficult, if not practically impossible, for a desperate government to confiscate it on a whim.

For example, some Cypriots did their homework and concluded that their home country was not a safe place to store a lot of cash. These people moved their savings to different countries, and avoided the so-called one-off emergency levy.

The need for political diversification is universal. It does not just apply to Americans or Europeans, but to everyone in the world. Of course, there are varying degrees of protection. People with modest means can internationalize, often without leaving their own home. Whether it's purchasing a foreign public company with your US brokerage account, purchasing real estate in a foreign country, or anything else in between, everyone can internationalize their assets to some degree.

Also—and this critical—as long as you follow the reporting and other legal requirements, internationalizing your assets is completely legal. There are a lot of popular misconceptions about that, so it's important to emphasize.

Retirement Accounts Are a Common Target

Dennis: So, when a desperate government can't pay its bills, it just takes money from people who have it?

Nick: Yes, that is exactly correct. The methods and the rhetoric may vary, but the end result is always the same. Any government that gets sufficiently desperate will siphon off as much of people's real purchasing power as it can.

Take IRAs and other retirement accounts, for example. They are often the next targets after a desperate government imposes capital controls and implements other broad wealth-confiscation measures, such as official currency devaluation.

Here's how it usually happens. A government will forcibly convert assets held in retirement accounts into "safer" assets, such as government bonds. Naturally, politicians will slickly sell the idea to the public as "for their own good." In reality, it's a way for a government to finance itself—by forcefully dumping its unwanted debt onto seniors and savers.

Dennis: How can internationalizing your retirement account protect you?

Nick: It's much more difficult for the government to convert your retirement assets if they are outside of its immediate reach. If you have a standard IRA from a large US financial institution, it would only take a phone call from the US government and poof, your dividend-paying stocks and corporate bonds could instantly be transformed into government paper.

It's happened in Argentina and numerous other countries, and it is certainly an option on the table in the US. Heck, there are already whispers about the US government assuming some risk for US retirement accounts. That's code for forced conversion of assets into government bonds.

Obviously, this is much harder for the government to do if your retirement assets are sufficiently internationalized. It is pragmatic and prudent to structure your IRA and retirement savings in an internationally diversified way. As a practical matter, international assets are not as easy confiscate.

For example, you can structure your IRA to invest in foreign real estate or certain types of physical gold stored abroad. If and when there is some sort of decree to convert or otherwise confiscate the assets in your retirement account, your internationalized assets ensure that your savings won't vanish at the stroke of a pen.

A Multistep Strategy

Dennis: Does this really apply here in the US? What about Europe and Japan?

Nick: Absolutely. Political diversification makes sense for everyone on the planet. For people in debt-ridden countries, it's doubly important.

At the very least, you can diversify into a foreign currency or foreign company—steps you can take using most US brokerage accounts. However, these steps only internationalize your savings to a small degree. If your foreign investments are in a US brokerage account, they are still within the immediate reach of the US government.

Holding assets in a foreign brokerage account—say, in Singapore or Hong Kong—creates a much higher level of protection. Plus, if some of your cash and savings are in a foreign brokerage account, they won't be trapped if your home country institutes capital controls.

Again, think about Cyprus. Doug Casey and I met with several Cypriot business people who said they were unaffected by the capital controls and confiscation because they kept cash in banks outside of Cyprus. Had they kept their money in Cyprus, it would have been subject to strict limitations on withdrawals and sending money abroad.

By holding their cash in Switzerland, for example, Cypriot companies diversified some of the political risk associated with their home country. Internationalizing part of your assets is like an insurance policy—one you are no worse off holding.

Dennis: OK, you've sold me. Keeping all of your money in your home currency and in your home country is risky. You could lose a lot, either through high inflation, heavy taxation, or outright confiscation.

At the same time, many folks with more modest portfolios want their money close by. What can they do to protect themselves?

Nick: Storing some physical gold in a foreign country is one of the best ways people with modest means can internationalize their savings. A number of service providers can help you do this from your own home. In some cases, you can also open foreign bank and brokerage accounts remotely without meeting high minimum-balance requirements.

A private, non-bank vaulting company is perhaps the best way to hold gold abroad. They allow you to rent a small safety deposit box in places like Singapore, Switzerland, Dubai, or Hong Kong.

Dennis: Our regular readers know that part of my Roth IRA is offshore. Many readers were surprised to learn that was legal. Are there easy ways to internationalize part of your IRA?

Nick: Yes, there are turnkey ways to do it. I touched on some of the details above. With a couple of important exceptions and limitations, it is possible and practical to structure your IRA so that it can open offshore bank and brokerage accounts denominated in foreign currencies, and invest in assets like foreign real estate and certain types of physical gold held abroad.

Success Demands Immediate Action

Dennis: Nick, I know you are a boots-on-the-ground type of guy. You've traveled to countries like Cyprus to learn how people have protected their money. Is there any common thread among those who successfully protect themselves?

Nick: Smart people who live in countries like Cyprus and Argentina took action before it was too late. They saw the writing on the wall and didn't wait. When you're trying to protect yourself from the destructive actions of a desperate government, internationalizing a year early is always better than one day too late. When the window of opportunity closes, it shuts tight.

In order for these destructive measures to be effective, they have to be sudden, surprise attacks. That was the case in Cyprus. On a seemingly ordinary Saturday morning, Cypriots awoke to find that the banks had been indefinitely closed and capital controls had been put into place. Their savings were no longer safe, and it was a surprise to most.

The critical lesson here is: act before it is too late. To me, the financial direction of the US government and its implications are crystal clear. The window of opportunity to internationalize and insulate yourself is still open, but it gets verifiably smaller with each passing week. Now is the time to start developing and implementing your strategies.

Dennis: Nick, beyond protection from a desperate government, I think of internationalizing your assets as the ultimate investment diversification. Even if a Cyprus-type event never happens to us, it's still the best way to hedge against inflation or deflation. Am I overstating my case here?

Nick: No, not at all. If one country is suffering an economic downturn, others are growing. If one currency is going down in value, others are rising. We used to credit air travel with making the world a much smaller place. The Internet has facilitated that ten times over. While Americans are used to investing in American companies, many people, even those with smaller portfolios, are now looking for the best investments in the world. If protecting your portfolio through diversification is important to you, then looking at worldwide opportunities is the way to go.

Dennis: Any final ideas you want to share with our subscribers?

Nick: I urge all of your subscribers to look at the worst-case scenario. No one knows for sure how far our government will go to confiscate wealth. At the same time, even if our government does not go to extremes, we are still ahead. If an investor diversifies internationally and takes advantage of worldwide opportunities, he will still be better off financially, and his portfolio will be much better protected.

Dennis: Nick, it's been a pleasure. On behalf of all our subscribers, thank you for taking the time to share your thoughts.

Nick: My pleasure, Dennis; thank you for asking me.

In Retirement Reboot, I discussed how easy the decision to go international was for Jo and me. On the one hand, the thought of sending part of our hard-earned money to a country we had never visited to be looked after by a highly recommended person we had never met, sounded absurd.

But on the other hand, we looked at the direction our country was headed. The annual deficit had doubled, and it was about to double again. We could see that sooner or later, this could destroy our wealth through high inflation. For us, going international was portfolio insurance, plain and simple.

Then I attended When Money Dies in the fall of 2011, where I spoke with people who had lived through economic collapse. Their stories doubled my confidence in our decision.


Dennis Miller, Senior Editor, "Miller's Money Forever"

The average human body contains 0.2 mg of gold with the bone containing .016 ppm and the liver .0004 ppm.
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