How I Learned Diversifying Overseas Was Key To Success

This week’s Live And Invest In Latin America Virtual Conference is giving me a chance to reconnect with contacts across the region…

Including longtime friend from Buenos Aires, Paul Reynolds.

Paul will be addressing the group tomorrow, updating us all on the current situation on the ground in Argentina.

I have a soft spot for this country… because I owe it a huge debt.

Argentina taught me the most important lesson of my investing career.

I went to graduate school to get an MBA in international finance. I understood diversification as an investment fundamental in theory.

Argentina showed me the harsh consequences of not diversifying internationally in reality.

In December 2001, Argentina removed the peg between its peso and the U.S. dollar. The government converted all bank accounts from dollars to pesos in one fell swoop overnight.

Same for debt. Whatever you owed was no longer repayable in U.S. dollars… but now Argentine pesos.

People with savings in banks woke up one morning to find that their account values had been decimated.

Meantime, farmers with mortgages on their properties got big breaks as the peso fell in the wake of the decoupling. In 2002, the exchange rate dropped from 1-to-1, where it’d been with the peg, to as low as 4-to-1.

Banks closed and real estate prices collapsed. It was a bona fide crisis investing opportunity and perhaps the best chance of our lifetime to buy property in this country.

And I did. Friends and I purchased three downtown Buenos Aires apartments over the next six months. Those were some of the most successful buys of my career.

I was surprised, though, during my property scouting trips and then during the time I spent in the country over the next two years, while the local economy was trying to stabilize itself, by the Argentine businessmen I was meeting. They weren’t nearly as panicked or even concerned as I’d expected them to be.

They weren’t struggling financially. In fact, they were doing quite well.

What’s going on here, I wondered. What do they know that I don’t?

And then finally it began to sink in…

The businessmen and professionals I was speaking with were the ones who had been accumulating physical dollars and keeping as much of their wealth as possible outside their country.

They could see the writing on the wall and had taken steps to prepare for the collapse they knew was inevitable.

Argentina’s economic history is filled with dramatic ups and disastrous downs. Over generations of experience, Argentines, I realized, had learned to diversify their wealth outside their own country.

It was simple—and effective—self-preservation.

That revelation in 2002 about the wisdom of keeping the bulk of your money outside your home country made a big impression on me. By this time, I’d already begun working to diversify my life and my investment portfolio, but watching this lesson play out in real life in Argentina compelled me to work harder and faster.

I wanted to be like the Argentine businessmen who were able to come through unfazed from what amounted to total economic collapse in their country… not like the average Argentine on the street struggling to pay his rent or buy groceries for his family because his life savings had literally disappeared overnight.

And, thanks to those Argentine businessmen, I understood in a real way the secret to making sure my family and I would be OK no matter what happened in the economy or markets of our home country… or of any other country for that matter.

For these Argentines, diversification was not a theoretical exercise. It was the key to survival.

It would be nice, wouldn’t it, not ever to worry about inflation… or market ups and downs… about the value of the U.S. dollar… P/E ratios… or any of the other financial indicators that could be causing you to lose sleep.

It’d be nice, too, wouldn’t it, to be able to retire when you want… perhaps to take off for a new life in a new country, an adventure overseas long before conventional retirement age… and still be able to afford to do all the things you enjoy… thanks to a steady stream of income.

Great, too, I’d say, to be able to leave behind as much wealth as possible for your loved ones while losing as little as possible to the taxman.

I can tell you right now that you can have all of this.

You can guarantee yourself and your family a prosperous, free-to-roam, and financially stable future no matter what the rest of the world gets up to…

It comes down simply to learning the lesson I learned years ago from the Argentines:

Take whatever you’ve got and insulate it… in an overseas bank account… in overseas property…

Keep what you’ve got tangible and accessible… but keep it at a distance.

In other words:

Diversify internationally.

The type of diversification plan I’m talking about involves spreading both your physical self and your wealth offshore—across different jurisdictions, different economies, different political situations, different asset classes, and different currencies.

Remember, I got started at this when I was 25 years old. I was no millionaire. I was the son of working-class hippies. My initial investment nut was a gift from my first wife’s parents.

You don’t need a lot of capital. You just need to take action.

And with everything going on in the world today, you need to take action now.

Lief Simon