Taking a global view
The world, at this moment in time, is made up of 196 countries and seven continents.
While the number of continents will never change (at least not for millennia), the countries which make up the world are in a constant state of flux.
The world will always be changing in some way. Different regions go through periods of progress and decline, growth and turmoil.
With improvements in technology, the world has never been more accessible; whether that’s communicating with other people, flying to far flung regions, or benefitting from the world’s foods, goods and services. The world has, in a sense, been ‘shrinking’.
Yet, when we manage our personal finances, we still too often think in terms of our own home country. In financial terms, this is deemed ‘home bias’. There are many reasons for this.
The first one is familiarity and understanding. We have grown up in our home country and are generally more familiar with the legal, tax, investment and political landscape etc. Furthermore, we often know professionals in these respective fields and have a general overview of our home country from the media consumed in our everyday lives.
Attached to the familiarity and understanding aspect, is the comfort factor. People simply feel more comfortable when their money is closer to home and where it feels more in their control. This is one of the reasons the general population favour residential property, as they can ‘touch and feel it’. Shares for example, let alone shares listed overseas, is a little alien, a little more out of reach and have the perception of being riskier (when the truth is sometimes they are, sometimes they aren’t).
Another aspect is fear of the unknown. While technology has enabled the world to never be more accessible, many of us still feel more comfortable closer to home, and that thought process extends to how we view our finances.
I have written previously about misplaced Patriotism. This remains a factor in explaining why we tend to have a home bias when managing our personal financial affairs. Many feel duty bound and obligated to bank, save and invest in their home country.
A part of this patriotism comes from government propaganda, yet it is reinforced with burdensome bureaucratic regulations. Rather than each country doing all they can to make it attractive for people to bank, save and invest in their respective country; many appear to instead favour a coercive approach.
Due in large part to the regulations outlined above, but also unfamiliarity, managing your finances with a global view can be, or at least feel, more complex. You may need to consider added tax issues, learn unfamiliar jargon, fill out extra paperwork, plus there are added aspects to consider, such as extra currencies; all when you probably feel that you have more than enough to consider when managing your personal finances.
As it is generally a little more complex and remote, there is also the perception of a lack of accessibility; but nowadays, that isn’t necessarily true. Sure, you can walk into your local bank branch and obtain your money when needed, which would be challenging and costly if your bank is a long-haul flight away; but you can still access your money at a click of a mouse, from anywhere in the world.
Managing your finances globally can also add in currency and other risks that need to be considered, managed or avoided. What people generally fail to realise, is that you take a currency risk by having all your money in your home country; if that currency were to fail, it often means an irrecoverable loss of wealth. However, you can’t ignore the valid considerations of the liabilities applicable wherever you call home, and the currency of where your wealth is denominated. For example, if you have your savings in pound sterling, but your liabilities are in Euros, then there will be constant changes in the conversion rate between each currency. With small sums, this can be a little annoying. With large sums, adverse movements can be wealth destroying. Contrary to this of course is that positive movements, can be wealth preserving and enhancing.
Finally, due in large part to media sensationalism, there is a general lack of trust in anything remotely connected to ‘offshore’, ‘multi-national’, ‘global’, or ‘tax haven’. Some of this is for good reason; there are many scoundrels operating around the world with impunity (just think of your dodgy car salesman or estate agent, but multiply the numbers involved and you get the idea). There are also many crooks who take advantage of different jurisdictions to escape persecution and hide ill-gotten gains. Yet, alongside this, hidden from the public eye as it doesn’t sell newspapers, are thousands of people and businesses, millions even, with legitimate reasons to manage their finances with a global perspective and manage their capital in a way best suited to their situation and requirements. A great deal of what goes on in ‘offshore markets’ doesn’t belong in a spy novel, it is often rather dull and the same as what takes place daily in the ‘onshore’ market.
While I have outlined some valid reasons for having a home bias, I remain convinced that taking a global view is the best way to ensure that your general prosperity can be maintained and enhanced for many years, throughout your lifetime and across multiple generations.
It is essential to take an approach to your finances that goes beyond a singular, nationalistic point of view. Adam Smith once said, “there lies a great deal of ruin in a nation” and by this he meant that a wealthy country requires a great deal of error to become ruined; yet who can say, hand on heart, they are 100% certain that ruin is not possible in any country in the world, at some point in the near or distant future? And how many of these ruinous episodes have you been able to predict?
If you keep all your finances in one country, you are not obtaining the benefits of diversification which can come from taking a global view. If your host or home nation happens to end up in ruin, as happens all too frequently, then you too will end up in total personal ruin.
If you take a global view however, your personal financial position and even your personal freedom can be protected and preserved.
This way of thinking about your finances applies to everyone, but it is especially relevant to those who expatriate from their home country. While you may have valid reasons for keeping some of your finances close to home (whether that is in the UK, or in your new expatriate location), it may be unwise to use your physical location as the deciding factor that dictates where you store and build your wealth.
Taking a global view, on the other hand, can provide more opportunity for growth, and provide more protection for your personal finances.
There are of course, many complexities, challenges and risks to consider, manage and overcome; but the ultimate goals of sustained and enhanced prosperity are worthy of your time and some extra consideration.
With the world now more accessible than ever before; It’s time to take a global view.