Dateline: Valencia, Spain
I just left Georgia. Though I won’t be back for a while, the two months that I spent there were highly productive in terms of advancing my personal foreign investment strategy.
While there, I did a number of deals, including a commercial property, cattle land, residential land in a suburb right outside Tbilisi, and a property on which I plan to build a house that I will christen “the Summer Palace”.
In the future, I plan on buying more properties at deep, deep discount prices.
One of the things that I like the most about that part of the world is just how easy it is to do deals. I was looking at the Doing Business index the other day and Georgia, Azerbaijan and Armenia — the three countries right next to each other in this region — were each ranked number five, six and seven in terms of ease of starting a business, and they were all highly ranked for registering property (Georgia was #3) and dealing with construction permits.
From personal experience, I can tell you just how easy it is to buy property in this part of the world. It’s a great place to buy. Obviously, you need to know what you’re doing in order to make money, but it’s a very easy place to invest.
In that spirit, I’d like to share my perspective on what I have found to be an essential part of any plan for asset allocation when investing overseas.
Three pillars of a successful offshore strategy
For me, investing is the third pillar of a solid offshore strategy. The first pillar encompasses everything that has to do with your business (or businesses), finances, asset protection, tax plan, bank accounts, company location, trusts, currencies, etc.
The second pillar includes anything involved with where you are going to live, including second residencies, citizenships and passports.
Pillars one and two often work very nicely together — they are often required to do so to make the whole strategy function.
Pillar three, however, is a beast unto its own.
As the third pillar, investing is something that most people do once they get to a certain level of success, particularly with their business. In fact, in my books, having a location independent business is key to a successful asset allocation strategy; but that’s a whole different topic that you can read about here.
Now, if you’ve inherited ten million dollars or you just sold your offshore business, your asset strategy might be a little different because you’ve likely got the first two steps handled. If that’s the case, you can automatically jump to pillar three.
However you get to the third pillar, when you have the resources to be able to invest, it’s important to know exactly how you’re allocating your assets.
Most people in the US and other countries in the West are accustomed to the idea that you should invest your age in bonds and the remaining balance in stocks and then shift those allocations as you get older.
Speaking to this are things like target-date mutual funds that allegedly reduce the risk profile from equities and move it to supposedly safer bonds. Another strategy many of us have heard of is buying precious metals as a small part of your portfolio — five, ten, twenty percent experts say.
But the truth is that there are many different asset allocation strategies. And, as is always the case, expanding your asset allocation strategy offshore opens up numberless possibilities.
Your asset allocation formula
Just as there are three pillars to a successful offshore strategy, there are three steps to establishing a working asset allocation formula for foreign investment.
After factoring in your monthly expenses, the first step is to save money as part of an emergency fund for the cost of living overseas. In my mind, that could be a one to two-year emergency cash reserve that is easily accessible, regardless of what the situation may be or where you’re located.
The second step is to have whatever money you will want or need to reinvest in your business in the next six months.
After that, all your remaining money would be considered part of your immediately investable assets, which you can then use to invest in various things.
High yield, income-generating properties
The bigger part of your investment portfolio should contain tangible, income-generating assets. This is what I’ve been doing quite a bit of recently; I’m buying a lot of apartments, commercial real estate and other cash-flowing assets. I love cash flow.
However, with my cash flowing assets, I don’t focus so much on appreciation. Instead, I focus on assets that I’m happy to have be linear; that is, assets that don’t go up in value in a big way in the long term, but they throw off lots of cash.
As long as I know that the assets have the necessary stability (i.e. I know that the market won’t go to crap or that the government won’t tax me into oblivion), I’m happy to make mild appreciation in exchange for cash now. In some cases, I’m getting a 10, 11, or even 22% cash flow. I’m fine with that.
A smaller, but equally important, part of your portfolio would be in tangible assets that do not generate an income. These assets are non-reportable and provide the extra benefit of not having any tax applications.
The role of precious metals in your asset allocation strategy
The first of these tangible, non-income-generating assets would be precious metals.
Now, you’ve probably already realized the importance of precious metals as part of a solid investment portfolio; and you’ve probably already invested in them as a way to preserve the value of fiat currencies. It’s also likely that you know that investing in gold and silver — if they’re vaulted privately offshore — is a good way to own non-reportable assets.
Investing in precious metals serves a lot of functions. It’s a tangible asset that you can literally hold in your hands and it’s never going to go to zero. Gold and silver have been in use as a form of money for thousands of years.
So it’s a great thing to have in your portfolio, whether it’s five, ten, twenty percent… you name it. However, some people bank on the idea that gold could go to 10,000 dollars in the future. The problem with that is that your fiat assets are then going to react accordingly to 10,000 dollar gold.
That is why I recommend having an additional, tangible, non-income-generating asset. My suggestion? Agricultural land.
The case for making foreign investments in agricultural land
I’ve recognized the value of agricultural commodities ever since I was 15-16 years old and reading books by guys like Harry Dent. To me, agricultural land serves the same purpose as precious metals: it’s tangible and, for many of us, it’s a non-reportable asset because there’s no income being generated.
This makes agricultural land a nice little side bet to keeping some assets that the government doesn’t demand you tell them about. But that’s not the only reason I’ve been doing more and more deals for agricultural land.
There are actually quite a few reasons.
Firstly, there are times when people really, really need cash quickly for their land. This means that you can pay less than its current worth because what it’s worth now is usually a less-than-tangible number.
Unlike on a residential property (the price of which can more accurately be pinpointed), the price of agricultural land is more of a range rather than a specific value. The best judge of the worth of agricultural land is what someone is willing to pay for it. So if someone needs cash quickly, I’ve seen some really crazy deals on land.
Think dirt, dirt, dirt cheap.
I’ve seen land for eight cents per square meter. And there may be some cases where I’ve seen cheaper. It’s not always the most productive land, but it invariably has some productive use, whether it’s for growing potatoes or corn, or even for cattle grazing.
The benefits of agricultural land over precious metals
In fact, I look at agricultural land as something that, unlike precious metals, you might actually want to go up in value. As more and more development occurs and the world population rises, and as more high-quality proteins are demanded and calories consumed by people in emerging countries, you’re going to see the value of agricultural land increase.
Even better, you can get some very attractive entry points on agricultural land. Gold and silver, on the other hand, have very, very, very highly defined entry points. For instance, everyone knows exactly what the price of spot is, and you know what an ounce of gold is worth to the penny. Because of that, no one is going to sell you gold for $200 under spot just because they need quick cash. They don’t have to. Precious metals is a well-defined liquid market (at least liquid compared with land).
But agricultural land isn’t like that; you can get some very attractive entry points on foreclosed land or quick sales. You can also get very cheap land in emerging markets by buying in bulk and cutting it up and reselling it in the future.
But the biggest reason I like the value of land is best illustrated by an example from my own experience with the agricultural land that I bought in Tbilisi. In the village two kilometers away from my property, people are selling their land for $30 or $40 a meter. I bought mine for two dollars a meter, but only because it’s 500 meters from the road. Yet, the government has already announced plans to build a road to my property in the next five years. The same goes for the power lines.
The ability to buy these lands and have them as part of your long term portfolio — where five, ten, twenty years from now you might see five, ten, twenty fold or even greater returns simply through the rising value of land, supply and demand and buying under market — is one of the most attractive factors for including agricultural land in your foreign investment portfolio.
Fitting long-term assets into your investment portfolio
With these things in mind, I would recommend putting 10-15% of your investable portfolio in something like agricultural commodities that have a long-term, drastic upside.
Personally, I choose to invest roughly the same percentage in long-term agricultural investments as I do in precious metals. So, if you were to allocate around a third or a quarter of your investable portfolio in tangible, long-term assets — part in precious metals, part in land — you could then have somewhere between 10-25% in cash, while the rest you would invest in income-generating assets that are much more liquid.
In my case, I want a much greater percentage of my portfolio in real estate that I can sell relatively quickly at a comparatively reasonable price. For instance, residential property that I know people are buying and for which there’s an active market. I want a lot more of my money in those kind of properties that bring me in income and that I know are relatively liquid compared to other lands.
BUT I also want a smaller, still significant part of my portfolio in something that I can sell in the long term. This is what I’ve been doing recently: investing in something that I know is steadily increasing in value and is a great long-term asset that provides me all the other benefits of being a non-reportable, hard to confiscate asset.
Figuring out YOUR asset allocation strategy
If you are offshore or plan to be, this is something to think about. What is your asset allocation? If you are earning an income that allows you to cover your expenses and still have money to throw into the investable pile every month, look at putting a portion of that into things that you don’t want to sell tomorrow.
I’ll be in Africa in November and December looking at land there and figuring out those frontier markets. For now, I’m investing in Eastern Europe. For some of you, your investment market could be in Central or South America.
Wherever you are looking to invest, this is something that you should be considering. Tangible assets should also extend to land. The profit potential, if you do it right, is substantial.
In summary, focus on having a balanced portfolio with a large portion of cash-flowing, relatively liquid property and a smaller portion of much longer term holds.
If you need help with this, you can apply for a personal Strategy Call and my team and I will assist you in designing your personal offshore investment strategy.