However, Swiss variable annuities that do not offer guarantees and meet other IRS guidelines remain tax-deferred, Rosen says. Taxes are only due when policyholders receive income from the variable annuities. The Swiss government does not tax fixed or variable annuity earnings.
Wittwer said that savvy investors are putting money into Swiss variable annuity bond funds to avoid U.S. taxes. "People are still investing in fixed annuities for safety, asset protection and diversification," Wittwer says. "But money is going to variable annuity income accounts because they are tax-deferred."
Major players that accept U.S. clients include: Pax Life Insurance and Helvetia Patria Insurance, both in Basel, Switzerland, and Generali Group in Adliswil. Swiss Partners in Zurich also offers an offshore variable annuity that is underwritten by the insurer's subsidiary in the Cayman Islands.
Gold bullion is another attractive safe investment option because it is a hard asset. It can be used as a medium of exchange. Gold bullion prices are up 25% over the past year through mid-March and almost 40% from its low in 1999.
Historically, gold has performed well in times of war and crisis. "During periods of occupation by a foreign power or the collapse of a monetary system, gold's liquidity, acceptability and portability have been particularly important," said Stephen Harmston, an economist with Bannock Consulting in London, in a recent research report. But, he says, gold has not always maintained its purchasing power during unstable times, such as World War I, World War II and the Gulf War. The reason: prices of other commodities needed for war rose more than gold prices.
From 1991 through 2001, gold prices and U.S. stock prices were not co-integrated, says Graham Smith, in his study, "The Price of Gold and Stock Price Indices for The United States."
Gold-linked notes and bonds are another way to play the gold market. Earlier in the year Charles de Vaulx, manager of the First Eagle Gold Fund, invested 7% of the fund's assets, or $10 million, in gold-linked notes for liquidity.
Major bullion dealers, commercial banks and governments issue gold-linked notes. Depending on their structures, investors receive interest income similar to bonds. Gold-linked notes can protect an initial investment against the fall in the price of gold, while allowing investors to benefit from higher total return on the upside. For example, the Hong Kong Shanghai Bank and Barclays Bank London have issued gold-linked bonds with prices tied to the performance of the bullion market. North American mining companies also issued gold-linked notes at high interest rates. The bonds are linked to gold warrant calls on their future production.
Many financial advisors can also look to stable-value funds as a safe place to earn higher yields in their clients' retirement savings accounts. Stable value funds are modern-day versions of Guaranteed Investment Contracts (GICs), which are issued by insurance companies. For clients who want more income than Swiss franc-linked instruments but may view moving money abroad in times of war as unpatriotic, stable value funds' appeal is undeniable.
An insurance company guarantees a stable value fund principal and interest. The funds own GICs, high-grade bonds and asset-backed securities. They come with a guarantee, known as a "wrapper," that the principal value and interest rate payments remain stable for a specific time period no matter how the financial markets perform. The insurance company absorbs any gain or loss in the stable value fund's net asset value. The reason, says Kelli Hueler, president of Hueler Companies, Minneapolis, is that insurance companies use book value accounting. In other words, the fund's value is based on what it paid for the assets, not what they are worth on the secondary market. Typically, however, the return on a stable value fund may fluctuate about 25 basis points during the year.