How to invest your money abroad

One of the most frequent questions asked by those seeking investment advice (apart from how to get away with insider trading) is how to invest one’s money abroad. While I am generally more optimistic about investment options within Pakistan, there is a legitimate case to be made for international diversification.

It is generally assumed that in order to start investing abroad, one needs a large amount of money. This is not true at all. In fact, I recently helped a colleague of mine open a brokerage account in the United States with only $2,000 and a US dollar account in Pakistan. The brokerage utilised was TD Ameritrade, a reputable American firm offering financial services.

There are many other brokerage firms that allow foreigners to invest in the US and I myself invest through one called Charles Schwab.

All my friend required was to fill out an online application, print it out, sign it and fax it over to the brokerage firm along with a copy of his passport, a salary letter from his employer and a US tax form (Form W8 BEN) which declares that he is a non-resident and hence not liable for taxation in the US.

He then wire transferred $2,000 from his US dollar account in Pakistan (some local banks allow customers to open such accounts with a balance as low as $100) to his brokerage account and now he has access to the entire spectrum of investments in the US.

A brokerage account, particularly one in the United States, is a powerful financial tool. The US capital markets are the largest and most liquid in the world. A US brokerage account allows one to buy stocks, bonds, mutual funds, exchange-traded funds (ETFs) and whole array of other instruments.

Crucial from the perspective of the Pakistan investor, through the US one can also invest in other markets around the world. Many foreign companies list their stocks on US exchanges, which can be purchased directly or through the many mutual funds and ETFs that invest in such stocks.

My friend, who has a high risk tolerance, has decided to invest in a combination of US stocks and stocks from emerging markets such as Brazil, India and China. For other investors, it is recommended that they have a larger percentage of bonds and other fixed income instruments as part of their portfolio.

It is important to note that the State Bank of Pakistan does have in place certain restrictions on currency movements. Individuals, for example, are only allowed to buy $3,000 per day from currency exchanges. It is not possible to transfer money from a rupee account to a dollar account. However, there do not seem to be any restrictions on the amount of money transferred from a dollar account in Pakistan to an account abroad.

There will, no doubt, be some investors who will ask whether the UK offers the same investment opportunities. London is undoubtedly one of the largest financial markets in the world and certainly gives New York a fair run for its money. However, financial service firms more familiar procedures at European exchanges are better equipped to offer such advice.

(Disclaimer: Neither the author nor The Express Tribune take any responsibility for the actions of the firms mentioned in this article and do not endorse any of their services)

The author is a financial and management consultant based out of Karachi. He can be reached at [e-mail]

Published in The Express Tribune, October 11^th, 2010.