Lee Byers Asks How The Irish Banking Crisis Could Affect All Expatriate Investors
Dublins historically favourable tax rates for big corporations
, and Irelands promotion by financial services companies in recent years as a secure and excellent place to invest, have both been reasons for many expatriates to commit significant sums of their savings to this island which is now in financial crisis.We have been receiving a high number of queries from concerned expat readers about whether now is the right time for them to get their money out of Ireland, or whether the governmental promises in place relating to financial protection and compensation are strong enough to mean that the Irish banking system is fundamentally safe and robust.
As the editor of Lee Byers I would just like to say that the questions people should be asking are perhaps bigger, broader and further reaching than this, because it is more than possible that the Irish financial crisis could affect all expatriate investors. If you have any money saved or invested in cash or equities, read on to discover where the vulnerabilities really lie.
Firstly, it is critically important for us to state that we at Lee Byers are not qualified to give any form of financial advice and that this article does not therefore constitute advice. Rather you are always urged to take qualified and regulated advice before taking any action that could affect your financial position.
Where Does the Problem Lie for Expatriate Savers and Investors?
In my opinion, all savers and investors have one fundamental issue to be concerned about and that is that Irelands style of fiscal management is neither autonomous nor unique.
Therefore, whilst you may be feeling safe because youre perhaps not invested in Ireland or because you are invested but the government has guaranteed your investment, the situation youre in is potentially no different to the position people were in as they watched Northern Rock collapsed safe from their position as savers with Kaupthing Singer & Friedlander!
The real problem is contagion - the fiscal problems that have brought Ireland to its knees most definitely exist in other countries such as Spain and Portugal.
You can then add to this the very simple fact that the IMF and the European Union do not have limitless capacity to bail countries out.
Their financial capacity is documented and if a large country like Spain ends up in the same situation as Ireland, that could clear out the coffers.
And if youre asking yourself: can Spain end up in the same situation as Ireland? - may I just ask you to look back at what happened during the recent banking crisis that notably rocked the US and the UK. Think of Greece as Northern Rock and Ireland as Lehmans. Do you remember what happened next?
What Can Expats Do to Protect Their Wealth?
It is critically important that we expatriates plan our finances so that they can deal with this potential scenario in the best way possible.
Here are just some of the possible outcomes that could happen from this point forward
1) More than 2 European states fail, leading to the rapid and very messy end of the euro as a currency
2) Any investments held in euros could be subject to massive re-valuations at this point
3) Investments held in weaker countries and currencies could not be guaranteed if more than 2 states fail So how do you protect yourself?
As with any type of investment it will be critical for investors to reduce their risk, and one of the greatest risks at the moment is for investors to be holding large amounts of currencies such as the euro.
Many advisers we have spoken to are not exactly confident that if the euro breaks, sterling will be able to stand up on its own two feet wholly unaffected by the euros collapse either
At the same time, one perhaps needs to bear in mind the fact that the US is seemingly determined to print as much devaluation of the dollar into their economy as possible!
So, in summary, with nearly all of the major currencies potentially accelerating their value path to zero, perhaps you should ask yourself how large a percentage of your portfolio should be held in any currency?
Personally I am looking to investments that hold their value in a currency crisis and yes, even some of these may take a temporary plunge, but they will generally recover. Think real estate and commodities both are potential options for investors during a crash.
Yes, the price of wheat may fall when a currency crashes, but because the fundamental demand for wheat wont disappear, the price is unlikely to stay down forever or drop to zero. Whereas lets face it, the demand for the euro really could disappear altogether!
Expats Be Careful of Asset Bubbles
Lots of people can see that there is a crisis in currencies on the cards, and its fair to say that many may turn towards more heavily marketed assets than more well considered assets.
Gold could now potentially fall into this bracket.
Golds value has risen sharply and it may well continue (and no one expects it to crash and lose all of its value) but do you really think its a strong enough basket for all your eggs?
Possibly not!
The strongest type of investment portfolio that could conceivably carry you through the traumatic and turbulent times potentially ahead could be a diversified asset based portfolio.
When equity markets used to crash it was very common for the investor to liquidate investments to cash I think it may be more prudent now to turn my equities and cash into assets!
Speak to your trusted, qualified, experienced and regulated financial adviser if you require any form of advice relating to how you should be protecting your assets.
by: Lee Byers