Transitioning an investment portfolio overseas, analysing the impacts on your tax obligations, and assessing whether specific assets remain appropriate for your financial objectives can be complex – and there is never one answer that is suited to every expat.
One of the essential aspects of any initial consultation with a wealth management adviser is to assess time horizons because this factor can have a fundamental influence on every other investment decision you make.
Here we’ll run through the importance and relevance of time horizons, how to select the most suitable portfolio assets based on timings and risk, and why support from an experienced professional familiar with the intricacies of cross-border investment can be invaluable to your long-term finances.
Why Are Time Horizons Important in Investment Advice for Expats?
A time horizon refers to the amount of time between now and the point at which you expect to draw down funds from your investments or cash in certain assets. One expat investor may, of course, have several meaningful plans or events, each of which creates its own time horizon, for example:
- Purchasing a property overseas.
- Retiring or selling a business.
- Financing a child’s education or first home.
Time horizons are entirely personalised, and will depend on your age, your current financial and retirement position, and the phase of your international relocation – whether you are already resident abroad or are planning to relocate to a new country.
Establishing time horizons is important because this starting point can dictate the types of assets you select for your portfolio. Assets with high-growth potential are necessarily also often higher risk, which could be a positive or a negative depending on your circumstances.
Before any financial adviser offers suggestions or advice, they should take note of your time horizons or help you decide on the relevant time horizons, alongside an assessment of your current investments held and tax status.
Further information is available through our earlier Expat Retirement Planning article, explaining how expats can benefit from independent financial assistance at any relocation stage and age.
Understanding the Link Between Investment Time Horizons and Risk
Although investment assets cover a huge scope of potential products, structures and asset classes, your time horizon, whether very short or spanning several decades, will feed into the risk linked to your portfolio.
As we’ve indicated, a high-growth asset will often be higher risk, but you could potentially offset some of that risk by diversifying or blending a smaller proportion of more volatile assets with a balance of stable, long-term investments with more certain returns.
Volatility can sometimes be an acceptable calculated risk where your time horizon is long, and predictions and trend analyses indicate that, over the years to come, the net gains will be advantageous and outweigh any short-term downsides.
Investors planning major life changes, such as retiring to a different country, may also not realise that assets currently considered low-risk and tax-efficient may become less so following their move, given the variances in tax treatments and allowances in different tax regimes.
Investment Types and Time Horizon Compatibility
There isn’t any applicable formula that will help select an exact mixture of assets your portfolio should contain, but there are some general rules of thumb that may be helpful when looking at whether your investments match your time horizon expectations.
Stocks or Shares
Equities held in specific companies or funds can provide annual dividends and long-term capital growth, but shares within smaller enterprises, start-ups and more uncertain sectors can be a high risk where the potential returns are increased, but the prospect of failure is also a consideration.
Government or Commercial Bonds
The returns available through investments in commercial or government bonds are more assured and usually provide a fixed income per year or a predetermined pay-out at the term expiry. This type of investment is generally safe but may be unsuitable if you have an immediate time horizon and do not wish to wait for medium-term bonds to reach maturity.
Property and Real Estate
Property investment can vary from purchasing a residential home to investing in real estate investment trusts, commercial property or rental assets – all of which will have a different potential time horizon based on how the investment is expected to add value and within what timeframe.
Alternative assets might include investment funds, ETFs, cash or cash equivalents, commodities or other physical asset investments, but each will carry a different risk profile and require thorough analysis to ensure it fits within your requirements.
Choosing the Appropriate Time Horizons for Your Investment Portfolio
Alongside a detailed appraisal of your investment assets, portfolio diversification, risk exposure and time horizon, as an expat investor, you may also have decisions to make about retaining or reinvesting overseas investments and whether to invest in your new country of residence or elsewhere.
Even a well-balanced, low-risk and stable portfolio may be less suitable if you have complex tax reporting obligations or will be exposed to higher wealth, income and capital gains taxes on your investment returns.
Overseas investment assets in a different country from your place of tax residency may offer the flexibility to draw an income or receive returns from abroad. Still, the tax applied to foreign-sourced earnings, including interest income, dividends and capital gains, should be accounted for in your plans.
The process of establishing your time horizon in itself can be straightforward but is an important part of planning your investment strategy.
By building in all of these other considerations, you can ensure your portfolio continues to provide the returns and wealth generation you require in line with your future plans and have the oversight to make adjustments as needed should your time horizons change.
For more advice about assessing your time horizon, creating a suitable investment strategy or revising your investment portfolio in light of changes to your circumstances, retirement plans or any other scenarios, please get in touch with your nearest Chase Buchanan Wealth Management team at your convenience.
*Information correct as at June 2023