How does citizenship by economic investment profit you financially?

I often write on Quora.com, where I am the most viewed writer on financial matters, with over 292.2 million views in recent years.

In the answers below I focused on the following topics and issues:

  • How does citizenship by economic investment profit you financially? Is it only about tax or something bigger?
  • Is gold a good investment these days?
  • How can a teacher living overseas build up a six figure income?
  • How does a person achieve “total” financial independence, and is it even possible?
  • Do I personally own Chinese stocks, directly or indirectly?

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How does citizenship by economic investment profit you financially?

If you are from most countries, it doesn’t usually benefit you. That is because changing your residency is usually enough.

If you are British and you move yourself and your firm to the UAE, you usually don’t need to pay UK taxes anymore.

There are caveats to this, like the UK now has a “ties test” and Australia makes expats “show intent”, but basically you can do it.

For Americans, like Eritreans, the taxation is by citizenship. Therefore, even if you move overseas, you can’t legally pay zero percent tax if earnings rise above a certain threshold.

This means that Americans in particular can benefit from changing residency and citizenship.

This man co-created Facebook:

He was born in Brazil but got US citizenship. His name is Eduardo Saverin. He gave up citizenship for tax reasons.

He made the move before Facebook’s IPO, in the hope of reducing his tax bill. A record number of American expats are doing the same.

However, citizenship by investment isn’t the only option. Others include:

  • Just renouncing US citizenship if you have another one already
  • Citizenship via descent
  • By marriage, if you first get residency and then convert to the citizenship program. Some countries allow this.

For some people, they also use citizenship by investment to “kill two birds with one stone”.

This tends to be the case when governments allow real estate to be used to apply for the program.

Finally, you have diversification. If you are worried about how your own country is going, you want to make to have some insurance.

I am sure most Venezuelans who could afford it wish they had a second option.

Is gold still a solid investment?

“Still” implies that gold used to be a world-class investment. Gold has never done that well ultra long-term.

It merely has its great moments, as well as terrible and OK time periods.

I guess the bottom line is how you define “solid”. If you mean an OK investment that can offer diversification, then a sensible argument can be made for this.

Gold bugs come in two shapes

  1. The deluded. People who believe civilizational collapse is always around the corner
  2. The sensible. Those who just want to put say 5% of their portfolio into gold

The issues I have with gold are

  1. It doesn’t pay a dividends unless you buy the gold miners
  2. It is expensive to insure and hold. This isn’t a big issue now due to ETFs and other structures but would have further made the historical net returns look awful. As per the chart above, if our great great great grandad had purchased gold in 1802, it would now have gone up about 0.5% above inflation per year. However, ETFs weren’t available until recently, so the real net returns are negative.
  3. It is usually very difficult to know in advance of time when gold will do well. Now sure, gold had a great 2000–2010, and especially 2000–2007. Yet it did badly during the worst of the 2008 crisis. What’s more, the outlook for gold looked great ten years ago. Yet gold has fallen even in nominal terms (it was at $1,800–1,900 in 2011 and is now at 1,795). That is a big fall in real terms
  4. As per the last point, gold isn’t a safe-heaven. It fell during 2020 as well as 2008. In comparison, short-term treasury bonds increased during both events. That means you can get diverisifcation in other assets
  5. If scarcity is the advantage of gold, you can say the same about so many assets. Look at Bitcoin now. I am not a huge fan but it is also scarce.

The only possible advantage of gold is if you hold it for 50 years, you will probably at least make inflation, and there will be periods when it does much better than stocks.

That is why even some sensible investors hold it as part of a wider portfolio.

How can an expat in South Korea make a six-figure salary using a teacher’s salary plus the internet?

It is unlikely that many people will make six figures from teaching internationally and using the internet for a side income unless:

  • They work at an international school
  • They build up the online income slowly and then quit the day job.

The latter option is more likely to work than doing both. The reason is simple. If somebody has say 3k from a day job, it is unlikely they will carry on to build 5k-6k online.

Once they get to 2k achieves from online sources, the incentive is to think “well I am living very comfortably now”.

In comparison, if somebody quits the day job and goes “all in” the incentives are different.

You will be motivated to not only make more money but to gain security.

Security is only achieved as a self-employed person if you start to earn twice as much as you need for a period of time and start saving.

I can’t speak about your exact situation. What I can do is speak in general terms.

When it comes to online income and starting a business it is best to:

  • Stick to what you are good at. So, maybe teaching in this case. Or maybe another skill you have
  • Start small. In this case that could mean joining some online teaching portals. Get a few students and then consider how you can do it by yourself
  • It is easier to sell yourself than a firm.
  • Focus on your strengths rather than work on weaknesses. I imagine an ordinary teacher can charge $20-$30 an hour. In comparison, a teacher who is specialized in helping kids of high-net-worth families get into top universities could charge hundreds with the right marketing.
  • Focus on (eventually) creating something scalable and not where you are accepting hourly pay.

In either case, playing it safe forever seldom works. I know living overseas makes it more difficult, due to visas and so on, but eventually the decision has to be made to go alone.

ow does a person achieve total financial security?

Firstly, “total” security probably isn’t going to happen. That is because nobody knows if there is going to be say a nuclear war or some unexpected event.

Covid-19 revealed that. So many people got complacent. I am speaking about people like business owners who thought “business has been good for decades now. Why won’t it be like that in the future?”.

So, firstly diversify your income streams and assets. Make sure some of your assets are in liquid instruments like ETFs.

There is a reason why liquid net worth is a thing, and not just net worth

Second, learn from the mistakes of others. Was this man financially secure?

How about this man?

No, they weren’t. They made loads of money but also spent loads. Tyson made over $500m ($1billion adjusted for inflation) but was once incredibly broke.

So, don’t just focus on making money. It is important, but managing and growing money is more vital.

That means spending below what you earn and the investments you pick matter more than merely earning a lot.

If you are lucky enough to earn a lot, delay spending much more by a few years at least, and even then, don’t go crazy.

Remember that over 70% of former elite sports athletes go broke in retirement, and there are tens of millions of “every day” millionaires globally.

These people have never made much, but have grown their wealth gradually over the decades with compounding.

Reading a lot, and executing what you have learned, is important.

Other tips are

  • Get good at a job first and then start your own thing if it is right for you. Not the other way around. A business can be a good idea, but most people try to execute “good ideas” without the needed experience or expertise
  • Block out most of the naysayers
  • Get rid of toxic people and surround yourself with better ones
  • Traveling, reading, emigrating, or moving cities in your home country will broaden your horizons and give you new influences.

Also, take your calculated risks early when you can afford to fail.

Do you invest in China stocks?

Indirectly, I do, for the following reasons:

  1. Chinese stocks are part of MSCI World:
  • China is a reasonable proportion of the index, as it is part of MSCI Emerging Markets
  • Greater China, including Hong Kong, is an even bigger portion:

Here is the composition of MSCI Emerging Markets:

2. Some Chinese firms have done IPOs on the New York State Exchange

  • It was increasing as well until recently

I wouldn’t buy individual Chinese stocks because:

  • It is difficult to beat the market, as an ordinary investor, by stock picking
  • Emerging and Chinese markets haven’t beaten the US and developed markets long-term. They do win, however, during certain time intervals. That means you are likely to earn less with MORE risk! Small-cap indexes, or the Nasdaq, is a superior way to go for the high-risk/high-return model.
  • There is a lot of issues with corporate corruption in China, for example, firms cooking the books. This is likely to get better with time though.
  • Some of the best Chinese firms are tech stocks. Long-term, tech isn’t going away, but the Chinese tech firms heavily dependent on the US face huge political risks, as both the Chinese and US Governments are trying to resrict them for different reasons.
  • The Mainland Chinese market still has a “frontier market” mentality. In the US, it is 80% dominated by institutional investors and many people buy and hold. Even Hong Kong is like that. In Mainland China, the “sensible” buy and hold money goes towards local real estate and international assets. A lot of speculative money goes towards the local stock market. I do think this will change though.

With that being said, the Chinese markets do look quite undervalued now, but that is also because of the mentioned risk.

The bottom line is having a relatively small allocation is fine. I wouldn’t be worried about Chinese firms being part of MSCI World.

Pained by financial indecision? Want to invest with Adam?

Financial Planner - Adam Fayed

Adam is an internationally recognised author on financial matters, with over 292.2 million answers views on Quora.com and a widely sold book on Amazon

Further Reading 

In the article below, taken directly from my online Quora answers, I spoke about the following issues and subjects:

  • I have $1m to invest. What are my options? I explain the key factors to look out for when investing above $1m, and why it isn’t much different to investing $100,000
  • If you are new to investing, where should you start when it comes to research?
  • Should the average retail investor engage in short-term trades or play it safe by buying and holding long-term?
  • Would I prefer to live in the UAE, or Japan, as somebody who has only lived in one of those places? I explain the huge differences, from an expat perspective, of living in these two places. 
  • Could poorer people become better off with some good advice from wealthier people? Do schools have a bigger role to play when it comes to educating tomorrow’s workers and business owners about personal finances?

To read more click on the link below.

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