No. of Recommendations: 16
There are various kinds of risks.
At a top level, there are risks to your portfolio coming from three main directions:
* The jurisdiction you're in, which has the ability to tax or restrict the assets, or even confiscate them.
* The financial system(s) through which you access the assets in which you're investing. These are subject to the issues of #1, but with their own potential frailties. This covers brokerages, custodians, counterparties and intermediaries.
* The underlying asset itself.
For example, for someone not primarily concerned about #1 or #2, I would argue that the safest possible single security is probably WIP, an ETF of inflation-protected government bonds issued by a mix of non-US governments, and/or a mix of TIP and WIP if you want the US in the mix. Currencies can do unpleasant things sometimes, but it can't really happen to all of them at the same time other than inflation, which you're protected against. A few countries might cook their inflation figures at the margin, and one or two might even default, but that's about it for risk. The #2 risk of the financial intermediaries failing could be mitigated by buying the underlying bonds yourself, but that is spectacularly inconvenient. At the very least you'd need a multi-currency wealth management brokerage account. (WIP is also an interesting investment for someone who is bearish on the US dollar, as it actually has a positive real yield. Measured in US dollars it looks poorly in the last 4 years, but that's because the US dollar is higher than it was then)
For a "US Person" (in the meaning of US tax law), it is very hard to get around #1, or even #2. Having accounts outside the US is to varying degrees either prohibited or impractical either due to US rules or the rules of the non-US bank or brokerage itself.
In a way, the most robust thing to do is probably just plain a lot of work: don't limit yourself to public markets. Buy (or start) a dry cleaning business in Manchester, and pocket the modest profits. Choose line(s) of business and jurisdiction(s) to suit your tastes--there are surprisingly few restrictions on foreigners starting or owning private businesses in a lot of countries if you stay away from finance and news.
A note on brokerage failures: in most cases, your assets are theoretically safe in rich countries. However, two concerns: (1) depending on jurisdiction, that may not include cash balances which are in effect unsecured loans to your broker, and (2) even if you get everything back, it may be years later. Most investors have investments that might need attention before then (bonds?), and you might need some of your money. I generally keep half my portfolio in each of two brokerages based in two different jurisdictions for that reason. They change from time to time. Inevitably, one will be easier to deal with and trade at than the other, so I keep my more active investments there and the more buy-and-hold stuff at whichever one is more of a pain to deal with. I feel safer with this than trying to assess deeply the "type 1" and "type 2" fragility above for a single brokerage. For me, maybe a so-so risk of losing half is better than a slightly lower risk of losing it all, since it is so darned hard to assess the true tail risk of any one group.
Jim
