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Investing as an expat comes with a multitude of complications and tax considerations. A profitable investment portfolio is certainly achievable, building capital growth over the long term with a stable, risk-averse approach.

If you’re an expat living overseas or planning for retirement abroad, then now is the optimal time to start strategising ways to leverage funds earning low interest in a conventional savings account.

While every investment method is tailored to your aspirations, finances, and plans, let us share some tips to avoid typical expat investment mistakes.

1. Focus on Contingency Planning as a First Step

The first question to ask is how much you can afford to invest. That requires a deep dive look into your aspirations, plans and outgoings, such as:

  • Emergency funds you wish to retain in liquid assets.
  • A risk profile assessment to explore the relationship between risk and reward.
  • Expected expenses, such as property transactions or family events.
  • Planned withdrawal dates to establish an investment timeframe.
  • Retirement plans – when you anticipate retiring, where, and your required budget.

A contingency plan is a fundamental building block to a successful investment portfolio since you mitigate the potential financial hazards associated with over-investing or accepting too high a risk exposure.

2. Access Expat Investment Advice for Asset Selection

Deciding on your investment assets is the following step.

Our recommendation, generally, is to focus on diversification, coherent with your investment goals and expected returns, with numerous options:

  • Multi-asset funds are popular since they offer access to all assets across the major classes within one fund. The fund is designed to generate capital growth with protection from market losses.
  • Equity shares in high-growth industries can pay outstanding dividends, far above average rates and offer the option of dividend reinvestment.
  • Fixed-interest bonds are often incorporated as a long-term retirement strategy, with stable returns over static periods.
  • Commodities, like gold, are a further option, but there are multiple potential assets, including soft commodities such as agricultural produce.
  • Property – individual property assets, collective funds or shares related to property businesses can all be held within a portfolio bond, often as a long-term investment that relies on steady sector growth.

Every investment carries a risk element, even if the exposure is minimal.

Diversification means spreading that risk across different asset classes, sectors, funds, and even countries to ensure that any economic downturns or changes won’t impact your entire portfolio.

Discover more about the risk assessment process through our earlier publication, How to Risk Assess Your Wealth Management Strategy.

3. Be Aware of Your Ongoing Fund Management Costs

Working with an unknown overseas adviser can be risky, particularly if you aren’t comfortable with your knowledge about the regulatory environment or enforcement in a new location.

Countless unethical businesses are not appropriately qualified to offer financial advice and charge extremely steep fees. Any expat investment product sold as low-cost or fee-free tends to have a pitfall attached, normally in the form of additional management charges.

We would advise any investor living abroad to be mindful of the commissions payable, insurance premiums or other charges rolled into an investment product, especially if that product is marketed at costs that seem unusually competitive.

4. Take Note of Underlying Currency Exposures

If you invest in products and funds across borders, currency exchange rates will come into play.

One of the best ways to stay on top of the potential risks of a fluctuating currency is to avoid investing solely based on FX performance. Stocks and bonds tend to appreciate, although the speed of growth depends heavily on the nature of the product, the amount invested, and the markets. Currency valuations are very difficult to predict with any certainty, so opting for long-term stable growth is often preferable.

If you plan to retire in Europe, for example, building an investment portfolio centred around Euro assets will stand you in good stead. This focus incorporates an element of insulation against any potential downturns in the currency since this will have a minimal impact on your economic circumstances.

5. Set Realistic Investment Return Targets

As a rough indication, the average return rates for cash savings sit at around 0.7 per cent in real terms, which is a minimal amount to earn against your wealth. The offset is the lack of short-term volatility, although inflation may outpace interest, reducing your overall savings a little at a time.

Other assets can return compound annual growth of anywhere from 3% to 12% or more, but continued gains rely on reinvestment.

Setting your targets correctly means evaluating how much you expect to earn and constructing a plan to achieve those goals without tipping over your maximum exposure threshold. It’s wise to speak with your wealth manager to set reasonable goals, before making any decisions.

6. Review Your Investment Funds Regularly

Regular portfolio reviews are never something you should leave to chance, even if you’ve been investing for many years.

A lack of regular attention can mean missed opportunities, unidentified dips, lower than expected returns, and a loss of cohesion between your diversified assets. Consulting an accredited wealth management adviser will ensure your funds are reviewed periodically and swift action is taken when necessary.

If you receive portfolio performance reports but aren’t clear on whether your returns meet your goals, please visit our guide to Translating Your Investment Portfolio Performance.

7. Don’t be Unnerved by Regulatory Complications

There are, of course, many different rules, tax regimes and regulations to consider – but avoiding any investment to protect your wealth is rarely a good financial strategy. As an expat, the intricacies of establishing your domiciliary and residential status can make the decision-making process more complex.

Still, an experienced adviser can quickly cut through the noise to give you clear options.

Compliance can be daunting, but retaining cash savings will typically not provide anything close to the possible investment returns.

8. Be Mindful of Your Expat Tax Obligations 

As we’ve mentioned, taxes will impact your investment choices. You need to adhere to rules about disclosing offshore assets, particularly if you remain liable for HMRC returns.

Most countries partake in information sharing agreements such as the Common Reporting Standard, so failing to declare returns can carry severe consequences.

Like many of the investment tips covered here, the best way to protect yourself from potentially unintentional non-disclosures is to work with a wealth manager with an in-depth understanding of the cross-border reporting requirements.

9. Seek Expat Investment Advice for Overseas Pension Plans

Pension planning, as an integral element of your financial strategy, is a broad topic, and much depends on:

  • The type(s) of pension you hold, and in which country.
  • Where you live or plan to relocate.
  • Taxes payable on pension income in your country of residence.
  • The value of your pension assets.
  • How soon you wish to retire, or whether you are already drawing a pension.
  • The rules around lump-sum withdrawals from your scheme.

Keeping your pension schemes at the forefront is important since you may find that you receive highly favourable tax treatments, again depending on the plan you have and how much it is worth.

Conversely, aspects such as the Overseas Transfer Charge may mean that an alternative solution is strongly preferable to avoid losing a large proportion of your savings to taxes.

10. Use a Respected Financial Adviser

Finally, the most reliable way to avoid investment mistakes as an expat is to ensure you have guidance from a trusted adviser with experience in the local rules and tax implications in your country of residence. Even the most competent financial adviser based in your home country may not be equipped to deal with overseas tax returns, declarations or property levies.

There are many considerations, depending on your residency or citizenship status, country of origin and place of residence, such as:

  • Applicable income tax treaties.
  • Possible overseas tax credits.
  • Special reporting requirements.

Chase Buchanan’s guide, The Post-Brexit Financial Advice Crisis, highlights this issue, explaining how British nationals resident in Europe have experienced huge disruption.

Our consultants have years of experience supporting a broad range of expat clients worldwide, with offices in global locations, providing on-the-ground knowledge and up to date compliance guidance at every step of the way. Please get in touch for more guidance on constructing a future proof investment plan or bespoke expat investment advice from the international experts.