It’s predictable…
A government in need of cash will turn to destructive “solutions.”
Money printing, higher taxes, and more regulations often come first. Unfortunately, these are just the hors d’oeuvres before a 10-course meal.
As they become increasingly desperate, governments implement increasingly destructive policies. This might include capital controls, price controls, people controls, official currency devaluations, wealth confiscations, retirement account nationalizations, and more.
The same pattern has played out again and again around the world and throughout history. The worse a government’s fiscal health gets, the more destructive its policies become.
This is the root of political risk.
But no matter where you live, international diversification can greatly reduce the threat your home government poses to your personal and financial wellbeing.
You know the benefits of diversifying your investment portfolio. If you put all of your asset eggs in one basket, you could lose your entire portfolio if that basket breaks.
The same idea applies to political risk. If your home country “breaks”—and turns to the destructive policies I just mentioned—you could lose everything.
Most people have medical, life, fire, and car insurance. You hope you never have to use these policies, but you have them anyway. They give you peace of mind and protect you if and when the worst does happen.
It’s no secret that political risk is snowballing in many parts of the world. This is especially true in the US and Europe, where welfare and warfare spending continues unabated. It doesn’t matter which party is in power.
