Investment Solutions

• A Mutual Fund is a portfolio of stocks, bonds, or other securities purchased with the pooled capital of investors.
• Mutual Funds give individual investors access to diversified, professionally managed portfolios.
• Mutual Funds are known by the kinds of securities they invest in, their investment objectives, and the type of returns they seek.
• Mutual Funds charge annual fees, expense ratios, or commissions, which lower their overall returns.

The rules for interval funds, along with the types of assets they hold, make this investment largely illiquid compared with other funds. High yields are the main reason investors are attracted to interval funds. 

REITs, which are structured as a corporation, are not typically taxed at the entity level, which allows investors to avoid double taxation on dividends. REITs must invest in real assets and derive most of their income from real estate activities, including rents from properties and interest from mortgages. The REIT must also pay out 90% of its annual taxable income in dividends. Due to this structure, they typically pay out a higher rate of dividends than equities or many fixed income investments. Dividends received from REIT holdings are taxed as regular income.

Depending on your situation, offshore investing may offer you many advantages including tax benefits, asset protection, and privacy. Disadvantages include increasing regulatory scrutiny on a global scale and high costs associated with offshore accounts. Offshore investing, despite its sketchy reputation, is a legal, effective way to invest in entities that are only available outside your home country.

Tax Advantages

Many countries (known as tax havens) offer tax incentives to foreign investors. The favorable tax rates in an offshore country are designed to promote a healthy investment environment that attracts outside wealth. For a tiny country with very few resources and a small population, attracting investors can dramatically increase economic activity.

Simply put, offshore investment occurs when offshore investors form a corporation in a foreign country. The corporation acts as a shell for the investors’ accounts, shielding them from the higher tax burden that would be incurred in their home country. Because the corporation does not engage in local operations, little or no tax is imposed on it.1 Many foreign companies also enjoy tax-exempt status when they invest in U.S. markets. As such, making investments through foreign corporations can hold a distinct advantage over making investments as an individual.

Asset Protection 

Offshore centers are popular locations for restructuring ownership of assets. Through trusts, foundations, or an existing corporation, individual wealth ownership can be transferred. Many individuals who are concerned about lawsuits, foreclosing lenders, or creditors collecting on outstanding debts elect to transfer a portion of their assets from their personal estates to an entity that holds it outside of their home country.

By making these on-paper ownership transfers, individuals are no longer susceptible to seizure or other domestic troubles. If the trustor is a U.S. resident, their trustor status allows them to make contributions to their offshore trust free of income tax. However, the trustor of an offshore asset-protection fund will still be taxed on the trust’s income (the revenue made from investments under the trust entity), even if that income has not been distributed.

Confidentiality 

Many offshore jurisdictions offer the complementary benefit of secrecy legislation. These countries have enacted laws establishing strict corporate and banking confidentiality. If this confidentiality is breached, there are serious consequences for the offending party. An example of a breach of banking confidentiality is divulging customer identities. Disclosing shareholders is a breach of corporate confidentiality in some jurisdictions.1

However, this secrecy doesn’t mean that offshore investors are criminals with something to hide. It’s also important to note that offshore laws will allow identity disclosure in clear instances of drug trafficking, money laundering, or other illegal activities. From the point of view of a high-profile investor, however, keeping the information, such as the investor’s identity, secret while accumulating shares of a public company can offer that investor a significant financial (and legal) advantage. High-profile investors don’t like the public at large knowing what stocks they’re investing in. Multimillionaire investors don’t want a bunch of little fish buying the same stocks that they have targeted for large-volume share purchases. The small fry runs up the prices.

Because nations are not required to accept the laws of a foreign government, offshore jurisdictions are, in most cases, immune to the laws that may apply where the investor resides. U.S. courts can assert jurisdiction over any assets that are located within U.S. borders. Therefore, it is prudent to be sure that the assets an investor is attempting to protect not be held physically in the United States. On the other hand (see below), assets kept in foreign bank accounts are still regulated under United States law.

Diversification of Investments

In some countries, regulations restrict the international investment opportunities of citizens. Many investors feel that such restriction hinders the establishment of a truly diversified investment portfolio. Offshore accounts are much more flexible, giving investors unlimited access to international markets and to all major exchanges.

On top of that, there are many opportunities in developing nations, especially in those that are beginning to privatize sectors formerly under government control. China’s willingness to privatize some industries has investors drooling over the world’s largest consumer market.

Offshore jurisdictions, such as the Bahamas, Bermuda, the Cayman Islands, and the Isle of Man, are popular locations that are known to offer fairly secure investment opportunities.

Private equity funds may acquire private companies or public ones in their entirety, or invest in such buyouts as part of a consortium. They typically do not hold stakes in companies that remain listed on a stock exchange.

Private equity is often grouped with venture capital and hedge funds as an alternative investment. Investors in this asset class are usually required to commit significant capital for years, which is why access to such investments is limited to institutions and individuals with high net worth.

• Private equity firms buy companies and overhaul them to earn a profit when the business is sold again.
• Capital for the acquisitions comes from outside investors in the private equity funds the firms establish and manage, usually supplemented by debt.
• The private equity industry has grown rapidly; it tends to be most popular when stock prices are high and interest rates low.
• An acquisition by private equity can make a company more competitive or saddle it with unsustainable debt, depending on the private equity firm’s skills and objectives. 

In contrast with venture capital, most private equity firms and funds invest in mature companies rather than startups. They manage their portfolio companies to increase their worth or to extract value before exiting the investment years later.

The private equity industry has grown rapidly amid increased allocations to alternative investments and following private equity funds’ relatively strong returns since 2000. In 2022, private equity buyouts totaled $654 billion, the second-best performance in history. Private equity investing tends to grow more lucrative and popular during periods when stock markets are riding high and interest rates are low and less so when those cyclical factors turn less favorable.

The general partner is usually a corporation, an experienced property manager, or a real estate development firm. The limited partners are outside investors who provide financing in exchange for an investment return.

Under U.S. tax code, partnerships are not taxed. Rather, partnerships do a so-called pass-through, sending all of their income to the partners and reporting on form K-1. Partners receiving a K-1 must individually file their partnership income on Form 1040 if they are an individual or on Form 1120 if they are a corporation.

• Real estate limited partnerships (RELPs) are LPs organized to invest primarily in real estate.
• Limited partners are generally hands-off investors while the general manager takes on day-to-day responsibilities.
• RELPs can offer high returns, with correspondingly high risks.
• RELPs may provide certain tax benefits, as they pass income through to individual partners.

Stocks are bought and sold predominantly on stock exchanges and are the foundation of many individual investors’ portfolios. Stock trades must conform to government regulations meant to protect investors from fraudulent practices.

• A stock is a form of security that indicates the holder has proportionate ownership in the issuing corporation and is sold predominantly on stock exchanges.
• Corporations issue stock to raise funds to operate their businesses.
• There are two main types of stock: common and preferred.
• Historically, stocks have outperformed most other investments over the long run.

• UITs are one of three basic types of investment companies. The other two are mutual funds and closed-end funds.
• UITs are sold in units that represent an undivided ownership in the securities held in the trust.
• UITs are fully transparent with holdings disclosed at the time of deposit and listed daily on the sponsor’s website.