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Annuities are turning some heads this decade.  Annuities, particularly fixed annuities, were once viewed as staid, safe investments for long-term tax planners.  Or, in other words: the boring but safe investments. Well now with global interest rates still trading at historically low levels and offering negative returns, the focus this decade has shifted to offshore variable annuities.  Or, in other words: the sexier investment-seeking annuity.  Compared to fixed-income annuities, investors’ interest in variable annuities has grown exponentially since 2000.  Since then, variable annuities have offered investors a host of powerful tax-based incentives and above-average long-term returns versus benchmark indices.  And the foreign currency options now available are even more compelling - including euro-denominated portfolios.  In fact, there are several attractive offshore portfolios you could invest in with your variable annuity. There’s a portfolio called an “all-weather portfolio,” which is designed to produce returns in any sort of investment climate.  But I’ll tell you more about that in a moment.  First, let’s take a closer look at variable annuities.  Offshore variable annuities are not guaranteed products.  Their performance is variable, meaning they are tied to the securities the annuity’s asset manager selects.  Most often, these securities include global equities, foreign currencies, bonds, commodities, and sometimes, even alternative investments like hedge funds and managed futures funds.  These products are suited for the long-term investor with an investment horizon of at least five years, and preferably longer.  Though you should plan on leaving your investment intact throughout its tax-free compounding cycle, variable annuities are usually liquid just in case the investor should require a capital distribution.  You can take out partial withdrawals or income payments without paying any penalties even after the first day.  And an offshore variable annuity policy is also a nearly impenetrable asset protection tool.  Properly structured and established in the right jurisdiction, these policies cannot be seized or included in any bankruptcy proceeding, 12 months after the setup of the policy.  These rock-solid asset protection vehicles are also easy to establish.  And the owner keeps full control.  Many financial planners, particularly those involved in estate planning, recommend offshore annuities as an asset protection strategy.  Also, professionals who work in high risk businesses (e.g. doctors, surgeons, entrepreneurs) flock to asset-protected vehicles to diversify their nest egg from potential creditors and lawsuits.  Annuities: One of the Last Vestiges of Tax Deferral Offshore variable annuities keep growing over the long-term tax-free.  The prospect of investing in top-rated offshore mutual fund portfolios combined with the powerful attributes of tax-deferred compounding and asset protection make variable annuities very attractive tax planning tools for U.S. investors. - Article continued below -

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The Strange Disappearance of 100,000 American Millionaires. Last year, the number of American millionaires fell by 100,000.  Yet 200,000 new millionaires showed up overseas.  Why?  Because hugely profitable investments are being hidden from you by a cartel of lawyers, regulators and Wall Street special interests. Like our recommended investments that gained 787% and 1,894% during the bear market and our other investments up 106%, 131% and 169%. Find out what they don't want you to know...

In the United States, investors can’t purchase offshore mutual funds because of the potentially harsh tax consequences.  Essentially, if an American investor buys an offshore fund, the investor is required to pay capital gains taxes from a separate source of income, assuming the investor earned an unrealized profit for that taxation year.  Most offshore funds do not make year-end distributions to shareholders, so any unrealized gains will have to be paid to the IRS from a separate source of income.

However, offshore variable annuities remain one of the last vestiges of tax-deferred compounding for U.S. investors seeking a first-class portfolio of top-performing offshore money-managers. Investors don’t have to pay any annual taxes on an offshore variable annuity - gains are tax-deferred until the policy is collapsed or liquidated. 

Offshore Mutual Funds: Greater Opportunities, Euro Diversification 
Over 50,000 offshore mutual funds are currently domiciled outside of the United States.  Many of these harbour excellent long-term track records and they are denominated in currencies fundamentally stronger than the U.S. dollar, like the euro.  Compared to the U.S. industry, offshore mutual funds offer far more products in the single-country, regional equity and sector equity universe.  In the United States, the fund industry is heavily tilted towards domestic equity funds, offering a growing but still constrictive base of international mutual funds. 

But other very compelling benefits are tied to an offshore variable annuity, including exclusive investor participation.  Many of the best performing offshore funds are either closed to new investors because of capacity limits or require high minimum investments in excess of US$1 million.  Some portfolio managers in Europe have access to special top-flight mutual funds, so investors have exclusive participation in otherwise so-called “forbidden investments.” 

European Funds Are Just as Safe as U.S. Funds - Sometimes Safer 
Offshore mutual fund regulation is generally on par with the United States Securities and Exchange Commission 1940 Investment Company Act.  In some cases, offshore mutual funds domiciled in Europe are even more strictly regulated.  Luxembourg, France and Ireland, the three largest European-based offshore mutual fund hubs, are not only regulated by their domestic securities laws, but also the European Union UCITS directive, or Undertaking for Collective Investments in Transferable Securities.  And only four years ago, amid the most widespread mutual fund industry scandal in a generation, many U.S.-based mutual funds were indicted and heavily fined for market-timing trading violations.

In Europe, despite numerous investigations following the Spitzer indictments, only a handful of mutual fund companies were convicted of market-timing.  Overall, the market-timing fiasco was largely confined to American mutual fund operators.  In fact, the second and third mutual fund industries in the world based on assets, Luxembourg and France, escaped without one single indictment. 

I would argue, overall, European Union mutual fund laws are even stricter than the 1940 Investment Company Act in the United States.  In order for EU countries to market and distribute their mutual fund products throughout the region, each mutual fund must be registered as a UCIT, an expensive undertaking that requires a heavy compliance burden.  This explains to a large extent why offshore mutual fund expense ratios are almost double the cost compared to those in the United States.

Offshore mutual funds domiciled outside of the European Union are not regulated to the same degree. Many of these tax havens are poorly regulated, offering very little investor protection.  In the past, several of these locales have been tied to investor fraud, scandals and ponzi schemes.  Some of the worst jurisdictions offering the weakest mutual fund securities laws include several Caribbean countries, the Pacific islands and even some of the British tax havens. 

The Investment for All Seasons: An All-Weather Offshore Portfolio
All around the world investors are turning to “all-weather portfolios.”  In stormy investment climates like the current one, these portfolios invest in some of the world’s top-performing funds and other investments to hedge against risk.  For example, there is one available in Europe now that invests in some of the world’s top-performing money-managers, starting at US$50,000 or eu50,000.  This particular all-weather portfolio is actively managed by an independent asset manager and offered in two currency classes - U.S. dollars and euros.

The level of diversification draws investors to offshore all-weather portfolios.  While American annuities invest in staid, overbought investments, offshore managers diversify their portfolios across all the major asset classes, except real estate.  This means any offshore all-weather portfolio may invest in various currencies, bonds, commodities, and offshore mutual funds (including many that are not available to an individual investor).

This necessary diversification helps them consistently produce solid, constant returns, sometimes in the double digits.  And for American investors, specifically, this currency diversification, helps hedge against a falling dollar.  Spreading out your annuity assets into several strategic currency investments can only protect you in case the dollar should topple (as most investment managers are predicting right now).

So for a relatively small investment, the investor truly gets the best of all worlds - including tax-deferred investing, foreign currency diversification, top-rated money-managers, and asset protection.  And all because they turned away from the boring, staid fixed annuities and started getting “hip” to the annuity of the 21st century: the variable annuity.
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