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How To Make Sure Your Investment Portfolio Is Truly Diversified

31 Mar

The Secret To A Worry-Free Life

An attendee at the Belize conference earlier this month told me that, while he has traveled all over the globe and has friends in many different cities around the world, he had never, until this month’s event, considered buying real estate in another country.

Despite this, he has what, until that point, he had considered a well-diversified investment portfolio. Stocks, bonds, metals, and even real estate. But the real estate is all in the United States. It’s in different states, but still all in the United States and, therefore, all in the U.S. dollar.

This is the situation that many U.S. investors are in…whether they realize it or not. They feel they are diversified because they own 10 different stocks (that’s what financial gurus typically consider “diversified”), a few bonds, and maybe a rental property or two. What they don’t consider is that their entire investment portfolios are tied to one currency and one market.

I spent time in Medellin recently with a friend who has been living and investing overseas for about a decade. He recently invested in a rental property in Colombia, where he plans to spend about half the year. His perspective on the associated currency risk is simple. He doesn’t care in which direction the Colombian peso moves relative to the dollar. He’ll win either way.

Forward-Thinking Investment

As he put it, if the dollar gets weaker, then his property is worth more in dollar terms. If the dollar gets stronger, then his cost of living while in Colombia goes down in dollar terms. Meanwhile, he’s earning rental income in another currency when he’s not using the apartment himself.

In other words, in the long run, no matter in which direction the dollar goes, he doesn’t have to think about his investment. The pesos he’s earning from rental income when he’s not using the apartment could cover his living expenses when he is in the country. If he generates enough rental income, he won’t have to think about the dollar exchange rate at all.

That’s the kind of investment and lifestyle diversification to aspire to.

Meanwhile, the conference attendee who now recognizes that he needs to make some investments outside the United States is starting his search in earnest. Over dinner our final night together, he told me that he’s resolved that 2014 will be the year he’s going to get truly diversified, moving some money out of the dollar and into foreign real estate.

It hasn’t been fear of the unknown that has kept him from taking action to this point. It has been simply his misimpression. Thanks to the talking heads on the financial networks, he’s believed that his portfolio was better diversified than that of the average guy on the street. Now that his horizons have been widened, he recognizes the benefits of having assets in different countries and of creating cash flow in other currencies.

He’s now on his way to a more worry-free life.

Lief Simon

Mailbag

“Lief, my wife and I are planning a trip to Boquete, Panama, later this year and intend to stay for six months to one year (maybe longer). We have subscribed to your wife’s 52 Days program and are working the exercises and benefiting from the information each day.

“I am beginning to look at making travel plans beginning with a flight from LAX to PTY. I requested a one-way flight, and Copa responded with a warning that the government requires arriving non-citizens to have proof of exit transportation. It may be possible to book an ‘open’ return flight or a ‘fictitious’ return flight (that might be changed later). The furthest out (today) we can book a return flight is mid-February 2015. Alternatively we could begin the process of obtaining residency, but would that get us past immigration when we arrive?

“What do you think? I would welcome your thoughts.”

P.S.

It’s not the government that will object to your one-way ticket to Panama, it’s the airline. It’s the airline that’s on the hook to cover the cost of returning you from whence you came if Panamanian immigration doesn’t allow you to enter the country.

That said, I don’t think that anyone is going to question a retired American couple arriving at the airport (as opposed to a single 20-something traveler, who likely would draw attention from immigration).

You could buy a bus ticket to Costa Rica (rather than a return or ongoing airline ticket). All the airline cares is that you can prove you plan to leave the country and do not intend to overstay your tourist visa.

Alternatively, you could buy a second one-way ticket for the return that is fully refundable and refund it after you arrive in Panama. Really, you could buy any one-way ticket out of Panama; it wouldn’t have to be back to LAX.

Bottom line, Copa is your hurdle.