A Land of Investment Opportunity
Switzerland has long been, and continues to be, an excellent choice for investment. For decades it has attracted the money of people who have desired a safe and profitable haven for their money. Since the early 1800s, Swiss bankers and financial managers have been discreet and confidential in their dealings with investors.
Although Switzerland is a small country, about half the size of the state of Maine, Swiss financial institutions control more than $400 billion in assets. Switzerland is the third-largest financial center in the world. Clearly, the Swiss provide investors with the investment options and service the investors desire.
In the opinions of many financial managers, Switzerland offers investors the most secure repository for money. The Swiss franc is the only major currency left in the world that is backed by gold. Gold reserves amount to 40% of every franc in circulation, and at today's market prices, the gold reserves would be worth several times the amount of francs in circulation.
Along with the stability of its currency, Switzerland also offers political stability. For nearly 500 years, the Swiss have maintained a policy of neutrality, and they have not been involved in war since 1815.
The Swiss take their reputation as a money center seriously. Never has the country imposed exchange controls on capital, nor has the government ever prevented anyone who has invested capital in Switzerland from taking it out again. The Swiss consider the right to financial privacy as important as the Americans consider the Bill of Rights to guarantee political freedoms. The right to financial privacy is protected by Swiss law. Discretion and secrecy are the foundation of Swiss financial institutions. In 1934, the Swiss enacted the Swiss Banking Law. It was originally aimed at Nazi agents, and attempted to prevent them from bribing Swiss bank employees for names of account holders. The law provided fines and prison sentences for any bank employees convicted of divulging information on bank customers. The law also prescribed that the bank employees must never give out any information regarding their banks' customers, even after they retired or left the employment of the bank.
This Swiss Banking Law remains on the books today. Instead of preventing Nazi agents from bribing employees, however, it protects bank customers from attempts by foreign governments, agencies, or individuals to obtain personal information about bank accounts and investments. If the holder of the account prefers complete privacy, he is given that by the Swiss. The Swiss won't even confirm that an account exists in a person's name, unless they are convinced that the account holder has committed a criminal offense under Swiss law. That the supposed crime must have been made under Swiss law is crucial, because many offenses, such as tax evasion in the U.S., are not recognized as criminal offenses in Switzerland. Thus, financial security is assured.
All of the above reasons make Switzerland an attractive country for investment; but there are even more reasons why you should consider Switzerland as an investment opportunity. Swiss financial institutions have English-speaking staffs and offer competitive rates. The insurance industry is as conservative and solid as the banking industry, providing another very attractive market for investment. Many Swiss banks offer excellent liquidity, and provide superior flexibility by offering any of the world's stocks, bonds, CDs, mutual funds, precious metals, or currencies at any time. Annuities enjoy almost 100% instant liquidity.
Switzerland is, clearly, an ideal choice for the investor who wishes to diversify by investing abroad. It has a strong financial base, laws designed to protect investors, and the expertise to allow investors access to various markets and opportunities. But there are still other reasons why Switzerland is a major financial center.
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More About Privacy...
Few people truly understand the nature and extent of Swiss privacy laws and regulations. Some people associate the Swiss with banking secrecy. They believe that Swiss secrecy makes the country a haven for "dirty" money, and that the Swiss have constructed obstacles to hinder law enforcement agencies from obtaining the evidence needed to prosecute criminals effectively. Then there are those who have come to believe that Swiss secrecy has deteriorated and doesn't exist anymore. Neither of these positions is true.
According to Swiss civil law, the information about a customer and his or her finances and investments is protected as a part of the individual's right to privacy. This has been made a part of Article 28 of the Swiss Civil Code. It not only protects the information, but places the burden of paying damages on any person who violates the privacy of another. Further, as noted earlier, the banking law provides severe penalties for a bank employee who divulges information about a customer. Any bank employee who does give information about a customer faces fines or imprisonment. The employee and his or her bank can be subject to penalties should a violation of privacy occur.
Only when authorized under existing statutory provisions, or by a Swiss court order, can a bank legally disclose information about a customer. Indeed, privacy is interpreted in such a manner that it is illegal for a bank to confirm if or not an individual is even a customer. Put bluntly, a bank can't say whether a person is a customer or not.
While banking personnel are prevented from making disclosures of the financial dealings of their customers, the customers, of course, can authorize the banks to make certain information available. For example, the customer can waive secrecy and ask the bank to provide a credit reference to a specific creditor. Such waivers, however, are valid only if the customer's request is voluntary and he or she has not acted under duress. No one but the customer can waive secrecy.
On the other hand, Swiss secrecy is not absolute. Some specific statutory provisions can take precedence over privacy. These statutes usually have a limited scope, however, and concern Swiss inheritance law, the enforcement of judgments from creditors, and in cases of bankruptcy or divorce. Criminal investigations are another area where privacy can be overridden. If a Swiss citizen commits a crime, criminal investigators can ask through a court order that secrecy is lifted. Treaties that Switzerland has with other countries extend this possibility to foreign crimes committed by foreign citizens, but the degree to which privacy may be set aside is limited by the language of each treaty.
Certain conditions must be met before the Swiss will honor any request that affects privacy:
- In the case of criminal acts, the offense being prosecuted is considered to be a criminal offense in both the requesting country and in Switzerland.
- In cases regarding taxes, a disclosure of information is possible only if the investigation of the foreign tax law violation would also be considered to be a violation under Swiss law. There is a special provision between the Swiss and the United States (the Swiss-United States Treaty on Mutual Assistance in Criminal Matters) that provides for Swiss legal assistance to U.S. prosecutors in tax evasion cases when the investigation involves a suspected member of organized crime.
- The information obtained in Switzerland through a legal assistance procedure, generally, may not be used for investigative purposes, nor may be introduced as evidence in the requesting state in any matter other than the specific offense for which the assistance was originally granted.
Foreign authorities can't directly request financial information from a Swiss financial institution about any customer. The authorities must first obtain a Swiss court order. Although financial privacy is not absolute in Switzerland -- for the obvious necessities regarding criminal matters -- the rules and traditions governing it are solid and clearly defined.
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The Swiss and Financial Stability
One of the greatest worries to savers and investors alike is the decreasing value of paper currencies. The dollar just doesn't buy today what it did yesterday. If you reflect back to what the dollar bought at the turn of the century -- a true measure of the dollar's worth is its purchasing power -- you quickly realize just how far the real value of the dollar has eroded.
Switzerland is the only country in the world that still backs its currency with gold. Throughout the ages, only gold has maintained its value; essentially it has not lost any value since Biblical times.
While the value of paper currencies may rise and fall, their general trend is to lose value through inflation. Only gold has retained its value through history.
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Political Stability and Neutrality
Along with its financial stability, Switzerland also enjoys remarkable political stability. Hand in hand with political stability is Switzerland's determination to remain neutral in international conflicts. Because of its policy of strict neutrality, Switzerland has become a refuge for capital from all corners of the world.
Switzerland's political stability and neutrality have combined to create an impressive economic neutrality. The country treats its investors, foreign or domestic, with the utmost respect. Switzerland has never imposed exchange controls on capital outflows, nor has it ever sought to prevent anyone from taking their investments out of the country.
Switzerland is also stable economically. The country has the highest per capita income of any industrial nation. Well aware that only by ensuring and rewarding individual achievement and prosperity can they ensure national prosperity, the Swiss government takes strides to allow people's efforts to be rewarded. The government understands well the need to defend the country's prosperity and the Swiss way of life.
Accordingly, the Swiss believe in an armed neutrality in terms of international relations. Switzerland maintains an army through a universal male military draft. The draft is compulsory for all men between the ages of 20 and 50. Between those ages, men periodically serve in the army. The army is supported entirely with the draft, which means there are no career troops of officers.
The Swiss army is one of the largest in Europe. Nearly 10% of the population, some 625,000 men are in the army at any given time. Switzerland follows only Germany in per capita military spending in Europe.
Despite not having been in a war since the days of Napoleon, the Swiss practice extensive military maneuvers each spring and fall. During the first and second World Wars, the Swiss army was mobilized and guarded Switzerland's borders.
Switzerland also maintains an impressive Civil Defense structure. All men over the age of 20 who for physical considerations can't serve in the military, and men over 50 who have been discharged, are members of the Civil National Defense Service. Women may join as volunteers. The civil National Defense Service maintains a system of shelters, ensuring that the shelters have safe air, water, and supplies of food. Moreover, Civil Defense personnel are trained in first aid, should the country suffer war or a natural catastrophe.
The Swiss realize that their country is unique in many respects, and they have taken appropriate measures to protect that uniqueness. Such measures and precautions are welcomed by investors.
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Switzerland's Government and People
Switzerland became a state a little more than 700 years ago. Although the actual events are shrouded in history, legend, which is likely based on fact, tells how three tribal chieftains met on a meadow called the Rutli at the foot of the St. Gotthard Pass. The pass was a direct route from the Upper Rhine to Venice, which controlled the silk routes to the East.
The three chieftains controlled areas that later became the cantons of Schwyz, Uri, and Unterwalden. They met because of a crisis caused by the death of the Habsburg ruler Rudolf I. The chieftains were worried that whoever became the new king would not be as understanding of the chieftains' needs as Rudolf was. The three chieftains agreed to form an alliance, and signed a treaty for mutual protection. This is generally regarded as the beginning of the Swiss Confederation.
In time the influence and strength of the Confederation grew. Lucerne was invited to join the original three cantons twenty years later. Further additions were made either through persuasion or conquest. Expansion was finally stopped by the French, when they defeated the Swiss at Marignano in Lombardy in 1515.
Because of its rugged terrain, the military prowess of its people, and the fact that the country had few natural resources, Switzerland was left alone by the rest of Europe. The Swiss, however, remained in contact with other nations on the continent by hiring themselves out as mercenaries. The Vatican still retains Swiss Guards.
Despite it being a small country, Switzerland is best described as being a loose confederation that is tied together today by mutual interests, just like the three chieftains banded together 700 years ago. The country today is highly advanced and industrialized. Its major cities, including Bern, the capital, Zurich, and Geneva, are noted for their culture as well as commerce and finance.
The country is a unique blend of diversity. If you were to only consider the diversified population of Switzerland, without taking into account the various other factors that combine to make the country a solid financial center, you would not believe that the country is one of the most stable in the entire world. Switzerland has roughly 6.6 million people, which make up an incredibly heterogeneous population.
Approximately 65% of the people speak Swiss-German dialects, many of which are not understood by other Germans. About 18% of the people speak French, 10% speak Italian, and 1% speak Romansch, a language descended from Latin. Fortunately, the Swiss learn to write in normal German. Many Swiss also speak English, which is true particularly of people who work in financial institutions.
The people are also diverse in religion. Although the country was mostly Protestant in the past, today various Protestant sects, Catholicism, and Judaism are represented.
Given these diversities, many might expect Switzerland to be a land torn apart by its differences. But in fact, Switzerland is very stable. The reason for this is not hard to find: The Swiss elevate the rights of the individual above virtually all else. The democratic system is based on this principle and is characterized by extreme decentralization of power.
The legislature, called the Federal Assemblies, is composed of a popularly-elected National Assembly, which is also known as the lower house, and an Assembly of States, which is much like the Senate of the United States and has one or two members representing each canton. (Present-day cantons are much like states in the U.S.) Members of the Federal Assemblies meet four times a year for 2 to 3 week sessions. They elect a Federal Council, consisting of seven members, which acts as the national executive branch. The Council then elects one of its members to serve a one-year term as president.
The Swiss put great stock in the people's right to referendum. Any bill enacted into law by the Federal Assemblies is subject to a general referendum by the country's electorate should opposition to the law be able to gather a minimum of 50,000 signatures in a petition. In the referendum, if more than 50% of the votes cast oppose the law, it is rescinded. This is a marvelous way of making sure that the power of governing resides with the people.
Knowing the power of the referendum, politicians are reluctant to pass laws that are unpopular with the general public. They take great effort to know what the people want and govern accordingly.
All of the major political parties are represented in the Federal Council, which also represents Switzerland's cultural, religious, and linguistic diversity. Imbued throughout the political system, and interwoven throughout the fabric of life, is belief in working toward consensus rather than confrontation.
Political power is shared by the federal government and cantons. Like in the U.S., power that is not delegated to the federal government resides with the cantons. Since most of the citizens of Switzerland identify more strongly in terms of politics and culture with their cantons, the cantons, historically, have enjoyed a good measure of independence within the federal framework. Much of Swiss political power in fact is wielded by the 26 cantons, which are autonomous and possess far more power than states in the U.S. do.
A third level of Swiss government is the commune. These might range from small villages with only 50 electors to good-sized towns. You might think of communes as constituting a local order of government. Communes decide issues of local importance, such as the construction of a new road, water system, or bridge. The decisions are based on popular vote.
Because of their special brand of democracy, where power resides mostly in cantons and communes, and federal authority is largely limited by popular referendum, the Swiss are able to play an active role in their government. Over the years they have evolved as a people who are moderate in temperament and conservative in their traditions. This is especially true regarding economic and financial concerns.
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Being a small country, Switzerland depends on importing raw materials to support its industries. Because its own people are a small domestic market, the Swiss must compete in global markets. To do so, they know they must manufacture high quality products and offer superior services. The exceptional quality of Swiss financial services has already been documented. Industrially, Switzerland has become a leader in the development of high-tech precision instruments, pharmaceuticals, and chemicals. Metal, machinery, and watch-making, closely followed by pharmaceuticals, are Switzerland's leading exports.
Most of Switzerland's trade centers around Europe. Roughly 60% of its trade is with its European neighbors. Trade with North America is greater than Swiss exports to Britain and France combined, which demonstrates the strong ties Switzerland has economically with North America, particularly the United States. A little less than 15% of its exports go to undeveloped countries.
Switzerland, in most years, runs a trade deficit. Because it is a small country lacking significant raw materials, the Swiss must import what they can't make themselves. Many products that could be produced domestically, but at a higher cost, are also imported.
Although the Swiss may run an annual trade deficit, the deficit is balanced out by other surpluses. The tourist industry, and earnings on Swiss capital invested in other countries, eliminates the gap.
Since they must import much of their raw materials, Swiss industrial managers realize that they must operate their companies efficiently and intelligently. Labor and management work together in partnership for the betterment of all.
Strikes seldom occur in Switzerland, where companies routinely disclose financial details of their operations to workers. This arrangement, which is found in virtually all Swiss companies, came about after workers of the metal industry renounced the strike as a bargaining tool in 1973. The workers in other industries followed. Management, to reciprocate, agreed to keep their workers informed about changes that affect their jobs and industry. Management and labor have thus enjoyed particularly fruitful relations, with the benefits going to the Swiss people.
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Education in Switzerland
No modern country can compete in the world marketplace without an educated workforce and populace. Education in Switzerland places a high premium on that premise, and gears its educational institutions to teach students which is essential to entering the marketplace and maintaining a steady living. Most students attend public schools whose fees are nominal. Education is compulsory for at least 9 years.
Although education is supported by the state, the organization and operation of individual schools is left to the cantons. This results in variation.
Most workers gain entry to occupations through apprenticeship. The youth of the country are expected to learn a profession or trade, and once they obtain a position, they are expected to work productively. Most Swiss do not change occupations often. The Swiss workforce is well paid; at the end of the year, most workers receive a bonus equal to a month's pay.
Education is viewed highly in Switzerland. The Swiss understand that a well-educated workforce is a primary reason for a country's economic strength and stability.
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Switzerland and the European Union
In December of 1992, Switzerland's electorate voted against joining the European Union. This was in opposition to the advice of Swiss political leaders, who were afraid that refusing membership would lead to decreased economic growth.
Some observers (who don't understand the Swiss) were surprised by the vote. After all, Switzerland is the richest country in Europe -- in some ways the richest in the world -- it is in the middle of one of the world's largest trading zones, and the Swiss opted not to forge stronger economic ties with nearby countries.
At first glance, one might be inclined to say that the Swiss made a serious mistake. Swiss companies depend on exports, and by declining stronger ties with the rest of Europe they will likely find it harder to send products across their borders. To remain competitive, they might have to expand the operations of subsidiaries within other European countries. They might also lose out on some investments that might now go elsewhere.
Some people worry that the stock market will also react on the downside. The combination of higher trade costs and a smaller rise in the growth of the gross domestic product might minimize any advantages from non-membership such as lower interest rates and the freedom from European Union policies.
Goldman Sachs, a major investment firm, quickly published a report about how the negative vote would hurt the Swiss economy over the long term. The report noted that some investments would be diverted from Switzerland, the economy would slip, which in turn would result in skilled labor moving out of the country. The combined effect would potentially decrease annual growth by 0.6 percent over ten years. That would be a significant amount.
All that, of course, is the conventional view. But the conventional view is often wrong, and it appears to be incorrect here, too. It is quite possible, even likely, that remaining free of the European Union will propel Switzerland's economy to even faster growth.
There are several sound reasons for this unconventional view. Switzerland is strong structurally. Many of its leading industries -- financial services, pharmaceuticals, food, and tourism -- look like major growth industries at least through the turn of the century. Moreover, the rest of the industrialized world, on the whole, is not strong in these areas. Most of the other industrialized nations are strong in industries in which Switzerland is weak, for example, electronic consumer goods, computers, automobiles, and aircraft. Another important factor to consider is that it is these industries that are likely to be threatened by increasing competitions from the Pacific Rim. Unlike the members of the European Union, Switzerland's major industries, except for machine tools which might suffer from stiffening competition, seem to be protected from much international competition.
There are, of course, areas where remaining outside the European Union will be an advantage. One of the great benefits of investing in a Swiss bank is the privacy and safety they provide. It is likely that entering into the European Union would compromise, at least somewhat, those benefits. Right after the vote declining membership in the European Union, a significant amount of foreign money began flowing into Swiss securities. Swiss accounts obviously were viewed by many as being far safer than other European accounts.
It is quite likely, based on these factors, that staying out of the European Union is the right thing to do for the majority of Swiss industries. Some industries, such as financial services, will surely do better. The overall effect of remaining outside will probably result in the Swiss becoming even more specialized, focusing their energies even more on their traditional strengths. Given the strong, steady growth of Switzerland's economy in the past, it is probable that trend will continue in the future.
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Investment Opportunities in Switzerland
When compared to the investment opportunities offered by other nations, Switzerland clearly becomes a smart choice. The country is stable, politically and economically, its currency is backed by gold and is rock-solid, and the country offers a variety of investment options.
Following are some of the most popular investment alternatives:
- Open a Swiss bank account. Opening a Swiss bank account allows you instant access to investment opportunities. Your Swiss bank should be able to buy stocks, bonds, currencies, and precious metals traded anywhere in the world. Their fees are competitive, and they offer expert advice.
- Transfer some of your assets to Swiss investments. Not only will this diversify your portfolio, but you will likely enjoy solid, steady growth.
- Invest in a Swiss annuity. Annuities can be bought for no fees, and you'll have to pay no Swiss tax. You will also have instant liquidity.
- Invest in Swiss real estate. Buy a retirement or second home. The prices are reasonable and you'll enjoy breathtaking scenery in a land with little crime or poverty.
- Invest in Swiss gold. Without question gold is the most effective guard of purchasing power. The Swiss know how to invest in gold the right way.
There are other investment options which will be detailed later in this book. Few people know the full range of opportunities in the Swiss "investment supermarket." In the following chapters you will learn just how varied and exciting Swiss investments can be.
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