by Craig Rowland 1 May, 2014

I advocate geographic diversification for a portfolio (using gold). This means not keeping all your money in the country where you happen to reside. The most common criticism I hear when I mention geographic diversification is, bar none, that it will be useless in a doomsday emergency because you cant get to the assets.

This objection though misses the most salient point of geographic diversification: Not every financial emergency is doomsday. 

Now, understand that I dont think imagining extremes in investing is ever a good idea. It can make you react with emotions like fear, and fear can cost you a ton of money in bad decisions. Ironically, geographic diversification is viewed as fearful by some. But actually, it is a way to control fear.

Think about this idea of controlling fear by being geographically diversified. For example, who is calmer when a hurricane is coming ashore? The guy with the storm shuttered house and emergency supplies but no way to leave? Or the guy with the storm shuttered house, emergency supplies, and a vehicle he can use to drive to a known safe location?

So it is when you have geographic diversification. You have a vehicle to get out despite your other storm preparations just in case. This will make you less stressed, less fearful, and less likely to overreact to headlines you see in the news. My experience then is that geographic diversification can make you a calmer investor if things are going badly. Someone who is calm in an emergency can make better decisions than someone operating out of fear.

Get Me Gold.

Most market emergencies do not result in a Mad Max breakdown of society. The idea youll need to get physical access to your gold overseas is not even the primary concern. There is a lot of room between all systems normal to motorcycle gang apocalypse. Thats where geographic diversification can really help.

Here are some examples where geographic diversification was tremendously useful, but there was no need to don the metal studded leather and prepare for Thunderdome:

Iceland in 2008 When the banking crisis happened there was turmoil, but not anarchy. You certainly didnt want all your money locked up in an Icelandic bank as a citizen though. Having some money outside the country gave you options to protect yourself.

Argentina in 2001 (and even today) You needed to not have all your money in Argentinian banks and you had some protection. Ditto for other Latin American countries like Venezuela where having assets elsewhere was a good idea during La Revolución.

Cyprus 2013 The banks had problems caused by unscrupulous practices. You had protection by not having all your money there as a citizen to get drawn into the mess.

Ukraine 2014 As a Ukrainian citizen, youd probably feel better if all your money wasnt in a Ukrainian bank as the country heads towards a possible war with Russia.

United States 1929 What about the Great Depression in the U.S. when banks were collapsing? Id have felt better knowing I didnt have all my money in a U.S. bank.

United States 2008 Big banks were bailed out, but what if they werent? Or what if they made investors do a bail-in for the failures as happened in Cyprus? You also had large money market funds break the buck and lock-up assets for years from investors that used them.

I could go on, but you get the point. Things happen in this world and having assets geographically diversified gives an investor more options to deal with an emergency. It doesnt need to be Mad Max to be useful. Thats why we spend a part of our book on the Permanent Portfolio talking about geographic diversification. Its important.

The United States in particular may have a rough future if the current trajectory continues politically, economically, and socially. I think its a good idea for U.S. persons to consider setting up some geographic diversification if they havent done so already. Investors shouldnt wait for an emergency to happen to make preparations.