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  • The Best Five Ways To Identify A Bad Offshore Investment 0 comments
    Jul 21, 2014 6:11 AM

    If the right person makes the right investment at the right time, we all know that riches will surely follow. From Asa Candlers purchase of the Coca-Cola business in 1891 for $2,300 (the equivalent of $57,875 today) to Peter Theil's early $500,000 investment in Facebook which eventually netted him over $400 million return, it is usually success stories like these that bring people into the world of investment. But what about when it goes the other way and your precious investment takes a hit? It's certainly not unheard of. The $20 million invested in DigiScents, a company that hoped to make the web a stinkier place, will certainly never be seen again.

    But don't despair! There are some simple questions you can ask yourself before investing that will go a long way to making sure your financial future is put into the right hands.

    1. Is the investment good for you personally?

    Every person is different, and so by extension everyone's investment goals and criteria are different. With this in mind it is important to not take investment tips from friends and peers at face value; what may seem like a good investment to them might be totally unsuitable for you. This could be because of an overly long maturity period or restrictive rules regarding how much of your money you can withdraw from the fund in a specified period. A good investment is one that balances the investors willingness to take risks with their ability to absorb losses.

    2. Do you understand it?

    This one seems simple enough, but you wouldn't believe the number of people who are happy to send their entire life savings overseas, without even being able to explain why they did so or how it works.

    The litmus test for this is as easy as sitting down with a friend and explaining it to them in the same way that your financial advisor explained it to you. If you find yourself struggling to remember the facts, or even worse bluffing the parts you aren't sure of, then it is a sure sign you need to go back and talk to your FA. If after that you still can't fully explain the scheme then you can be certain that the investment isn't right for you.

    3. Do you understand the charges? What are the annual fees? What is the exit fee? What impact will the charges have on the results of the investment?

    More important than understanding how the scheme or investment works, is understanding how your actions could affect your potential payout at the end. For bond based schemes early removal of your funds could result in large charges or taxation and could also effect the rate of interest you receive.

    You also have to take into account potential bond charges. These are sometimes up to 1% or 2% per year as well as a 4% up front fee and an ADDITIONAL annual fee of, usually, £400. All things considered it is often unwise to make small investments offshore, and many advise that a minimum of £50,000 should be invested to offset investment charges.

    4. Is the investment suitable for the term you are investing for?

    If you are currently living in the UK but intend to move abroad in the near future, you will probably want to start moving your funds to offshore investments. However, is very important to take into consideration the amount of time your funds will be locked up in the investment.

    If you intend to move in two years but your investment doesn't allow you to withdraw funds in the first three years, you may have to delay your plans. Inversely, if you tie up your funds in an investment with excellent returns over 5 years but you are actually looking to invest for 20 years, you will have made a mistake.

    Luckily, "when will you want your money back?" is frequently the first thing an investment advisor will ask you, ensuring that you make the right decision and , more importantly, can cash out at the right time

    5. Where is the fund incorporated and in which jurisdiction is it based?

    The relationship between your country of residence and the jurisdiction you are investing in is very important. If you end up with the wrong combination of locations, you may be taxed twice on your earnings, once in the jurisdiction they are generated and once in the jurisdiction you are physically based in. It is also important to avoid jurisdictions with withholding tax schemes, where tax is paid to local and foreign governments out of your earnings before they even reach your pocket.

    With the above in mind you are now more equipped to identify the telling signs of a bad offshore investment that you were ten minutes ago, congratulations! However, all the web research in the world can't substitute the 4-5 years training that most qualified financial advisers must go through to get their licence from the Financial Services Authority, so be sure to seek professional advice.

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