Consider The New York Times. In a recent front page article about an IRS crackdown on tax shelters, reporter David Cay Johnson wrote: “These actions come after a decade in which enforcement of the tax laws grew so lax that the tax shelter industry flourished and tax crimes, like opening secret offshore bank accounts, openly advertised.”

Doesn’t this cleverly twisted sentence suggest that having an offshore bank account is a crime? The fact is that there is no legal prohibition against U.S persons having offshore bank accounts. The law does require you to report the existence of these accounts each year if they exceed, in aggregate, US$10,000. If you don’t file, that is a crime. 

Indeed, I can think of at least six important reasons to invest outside the United States: 

1. Top performance. Many of the best-performing investments in the world are not in the U.S. Take Man-AHL Diversified PLC, for instance, an offshore fund domiciled in Ireland that’s gained an average of +21.5% per annum since 1996—right through the worst bear market since the 1930s! And it’s not the only top-performing offshore investment. Indeed, every one of the 500 non-U.S. managed mutual funds tracked by Business Week’s quarterly Offshore Funds Scorecard finished the quarter ending June 30 with positive returns. And more than 96% of them turned in double-digit gains.2 

2. Lower portfolio volatility. When you invest internationally, you reduce the risk to your overall portfolio. This has been proven in studies which show that investors holding both U.S. and international stocks have experienced lower volatility in every five-year period since 1974.3 

3. Currency diversification. For decades, the U.S. dollar has been losing value in relation to stronger currencies. For instance, in 1970, a U.S. dollar would purchase approximately 4.5 Swiss francs. In September 2003, the dollar purchased only 1.4 Swiss francs. While U.S. investors can purchase foreign currencies through a few U.S. banks, offshore banks generally offer higher yields, lower fees and lower minimums. 

4. Protection from professional liability and other claims. U.S persons with international investments enhance their ability to protect assets from lawsuit, civil forfeiture, business failure, divorce, foreign exchange controls, regressive legislation or political instability. International investments avoid the U.S. asset-tracking network, which permits investigators to easily identify the unencumbered assets of a potential defendant. 

5. Enhanced privacy. The U.S. is one of the few nations lacking a federal statute that protects bank or securities accounts from disclosure except under defined circumstances. Many disclosures that are illegal in other countries, either under international agreements such as the European Privacy Directive, or under national laws guaranteeing financial secrecy, as in Switzerland, are commonplace in the U.S.