Move out of the country for better returns and more wealth?

The recent record snowfall here in NYC had nothing to do with me writing this post, I promise. This is something I've been thinking about and researching for a while.

Would moving and working in another country lead to higher net worth and more spending power? I'll try to leave the issues of quality of living out of this, since that is mostly subjective. Furthermore, I'm also leaving out the feasibility of just picking up and moving to another country, I'm no immigration expert. But first, we have to tackle the main components of growing wealth.

Since your choice and allocation of investments (stocks, bonds, etc.) is not limited by where you reside and work, your rate of return is also not going to be affected. The only factors in your REAL rate of return are going to be taxes and inflation. This is highlighted and thoroughly examined in this Study of Real Real Returns.

Looking at the first couple of charts, you can see that the real increase in net worth is only a fraction of the nominal gain. And most striking of all is that in the calculations, only dividends have been subjected to the capital gains tax! This means that if you were to cash out your investments, you would be further taxed another 20%! (I've read and reread his calculation methodology to confirm this, please let me know if I'm wrong).

Your other source of income is your job (or business). And likewise, taxes play a big role here. Assuming you hold a 50k job, a mere 5% reduction in your income tax rate would lead to 2500 extra dollars a year to invest. Do the compounding magic, and after 20 years that turns out to be a tidy sum (2500/yr, 5% growth turns out to be 88k, no taxes).

Ultimately, the point is that taxes play a HUGE role in your net income, your rate of return, and your capital gains (remember companies are taxed also, thus influencing their growth). Take a look at your paycheck and you'll realize that taxes are one of the biggest expenses you incur. While inflation is out of our control, taxes are not.

In the next part of this post, I'll compare some of the tax rates around the world and see how the US stacks up. I'll also explore the influence of tax rates on stock returns. Lastly I'll come up with a shortlist of possible and ideal places to move to!

Please realize that I am not advising anyone to move, I am merely pointing out alternatives. For most people, this will extremely difficult if not impossible. As usual, feel free to email or leave comments!