American investors often tend to overconcentrate in US-dollar assets. US markets have seen great growth for a long time, but times are changing, and many American investors are now looking to diversify and invest and move their money abroad.
Reasons for this include inflation, political gridlock, ballooning deficits, US market volatility, and global conflicts, and investors are asking: what happens if things go sideways in the USA?
Many investors are adapting by moving money out of the US and investing overseas. This doesn’t mean panic-selling your portfolio, but it may mean carefully moving part of your wealth out of US assets.
Below are some options and considerations for American investors looking to move their money out of the United States.
Invest in international ETFs
The easiest way to get foreign exposure is by buying US-based ETFs that hold non-US stocks and bonds.
While your money never leaves the US financial system, you are investing abroad and diversifying internationally. These funds are US domiciled, US dollar-based, and US-tax-reportable. If the US tightens capital controls or taxes foreign assets more heavily, you’re still exposed.
Also, if you’re living abroad in the EU, you may not be able to go down this route, as most US ETFs don’t meet EU disclosure requirements under EU PRIIPs regulations. Seek advice from an expat specialist financial advisor however, as there may be work arounds and compliance solutions.
Buying foreign stocks and bonds directly
If you want real offshore exposure, you need to open bank or brokerage accounts abroad and buy individual securities.
Buy individual blue-chip stocks, sovereign bonds, or corporate debt directly through a foreign broker that works with Americans. It’s important to keep the account in your name, and to log and report everything.
Stick to individual securities and foreign stocks though, as the IRS classifies foreign mutual funds and most non-US ETFs as PFICs – Passive Foreign Investment Companies. PFICs come with burdensome reporting and punitive taxes.
If that sounds like a hassle, it is. But it’s clean, legal, and tax-efficient in both the USA and the EU, if done right.
Foreign bank term deposits
Many Americans abroad ignore foreign local banks, but they can offer options for international diversification.
A three-year euro term deposit at a AAA-rated bank for example won’t make you rich, but it does offer geographical and currency diversification and a stable investment. You would hold actual euros, not dollar proxies, and you’re outside the US system.
Just make sure the bank accepts US clients, as many don’t, due to FATCA reporting rules. This means they will report your account to the US Treasury, and you’ll have to report it, too, under FBAR and FATCA rules (more on these below).
This route works well for conservative capital and emergency reserves.
Real estate: currency hedge with a yield
Foreign real estate offers something paper assets can’t: a potential second or holiday home.
Whether you want a backup home, a rental unit, or a long-term store of value, real estate abroad can work. You earn in local currency, gain exposure to inflation and rising property values, and potentially establish residency rights abroad in the process.
But don’t underestimate the red tape. Title laws, taxes, and maintenance vary wildly. Hire a local lawyer, use an escrow, and avoid developer hype.
Another advantage of real estate is that it falls outside of US foreign asset reporting rules, so doesn’t create more compliance tasks.
Don’t forget: US reporting rules apply worldwide
Don’t forget that the US taxes all US citizens on their worldwide income and requires non-US account and asset reporting. So whether you live in the US or abroad, you’ll still need to report your non-US financial assets. The two more important US reporting rules are:
● FBAR: You must report foreign accounts over $10,000 in aggregate. This includes brokerage, checking, savings – even if dormant.
● FATCA Form 8938: If your foreign financial assets exceed certain thresholds, you must file Form 8938 with your tax return.
Failure to file can mean massive fines – even jail, so work with a US tax professional who is familiar with international reporting requirements.
Cross-border estate planning
Unfortunately, your US will might be worthless in France or Brazil.
Many countries apply forced heirship laws, and probate can be a headache. If you own property or other assets abroad, revisit your estate plan with someone who understands treaties and cross-border succession law.
You may need separate wills in each country where you have assets. You may need a trust, but note that many countries don’t recognize the benefits of trusts. Either way, seek expert advice when investing in foreign assets.
The one advisor you definitely need
Most US financial advisors are clueless about cross-border investing, and many foreign advisors aren’t familiar with US reporting obligations.
What you need is an expat advisor who has experience working with Americans with foreign investments, who understands the best strategies and can advise you based on your goals and circumstances. Some offer model portfolios designed for Americans living abroad – US tax compliant, FATCA aware, and not PFIC-triggering.
The real reason to go offshore
By holding assets across currencies, countries, and legal systems, you are reducing systemic risk. In uncertain times, you gain flexibility, and often a ‘plan B’ in case you need to move overseas at any point. You also protect your heirs from a purely US-centric system that might not serve them well.
So if you’re thinking of joining the many investors seeking to get their money out of the US, think legally, strategically, and calmly, and seek advice from an experienced cross-border financial advisor.
Diversification isn’t just about sectors anymore, it’s about political risk mitigation and lifestyle choice.
If you have any questions about financial planning as an American living abroad, get in touch.
This article is for informational purposes only; it is not intended to offer advice or guidance on legal, tax, or investment matters. Such advice can be given only with full understanding of a person’s specific situation.
