Investment is an exponentially broad field, with countless products, strategies, timeframes and risk methodologies – and one that is often misunderstood.
It is impossible to overstate the scale of options available, from real estate to private equity and hedge funds to pension schemes. Let us run through some common misconceptions about the world of investment and why ‘capital at risk’ may be much less risky than leaving your savings in situ.
Myth: Invested Money is Inaccessible
A common concern is that, once funds have been invested, they are locked into that product and cannot be withdrawn if other priorities arise.
Most investments are seen as a medium or long-term commitment, and a basic concept is that you should maintain investments for five years or more to smooth over blips in returns. Investments aren’t a savings account, and it is correct that you may need to give notice depending on the type of products you have – but your money isn’t locked away.
While there is an element of truth in that some products have a minimum investment period, this doesn’t have to be the case if you require flexibility.
Reality: A Wealth Manager Can Suggest Flexible Investments
The best way to pick the most suitable investment products is to consult a skilled wealth manager, who will work with you to establish your goals and address any apprehensions you may have.
You may prefer investments without a fixed-period or early disposal penalty or decide to invest some of your portfolio in fixed-term products and the balance in funds where you can withdraw as you wish. Much will depend on your circumstances – for example, if you are transferring a pension fund overseas, you may be able to access a lump sum at your convenience, provided you are above the minimum withdrawal age.
Another option is to save between three and six months’ worth of expenses before deciding how much to invest, ensuring you have a contingency fund available without mitigating your potential investment performance.
Myth: Investors Require a Substantial Amount of Capital
Many believe that investment tools are only accessible by wealthy investors or institutions. In the past, this may have been true.
Still, investment has evolved with the years, and there are advantageous options available to expatriates that focus on maximising pension returns or transferring retirement funds to optimise future income streams without any additional cash investment.
For most people, their property and pension are the most valuable assets they will own. Yet, the financial agility of a long-standing pension scheme, for example, is often underestimated.
Reality: There Is a Suitable Investment for Everyone
There is an appropriate investment approach for you, whether you wish to save for education fees, increase your retirement budget, finance an international relocation, or provide for future healthcare costs.
We have summarised The Best Expat Investment Opportunities in 2022 to give you a flavour of the diversity of options available.
Myth: Investment is Inherently High Risk
There are risks associated with an investment, and a responsible adviser will reiterate that there aren’t any guarantees that you will receive the expected returns. But, the definition of risk is different for each person and portfolio.
High-risk and volatile investments are not for everyone (perhaps not for many), so options such as cryptocurrencies or hedge betting may not be suitable if you do not have surplus wealth to gamble.
High-octane investment and schemes portrayed in the traditional perception of Wall Street form a fraction of the investment market and are rarely a key component of a well-balanced portfolio.
Reality: Your Investment Risk is Under Your Control
There is always a suitably comfortable position, regardless of how long you wish to invest and how much exposure you are prepared to accept.
If you prefer a cautious approach, there are just as many funds or products that are stable and often used as retirement investments as there are higher-risk alternatives. The greater risk is, in fact, not investing.
Cash in a savings account will inevitably decrease in value along with inflation, which means wealth held in a low-performance account will be reducing slowly – but certainly. Further guidance is available through our guide to Expat Savings Advice – Leveraging Your Assets as a Retirement Strategy.
Myth: Investment Requires Expertise
This myth is another with a foundation in the truth, but one that should not be a barrier to successful investments.
Investing is about more than buying and selling shares, and you might consider:
- Property investment
- Retirement schemes and pension products
- Bonds, mutual funds or ETFs
- Stock options
- Annuities and insurance products
- High-yield savings accounts
- Government or corporate bonds
While skill and experience are required to ensure you select a beneficial blend of investment products, you do not necessarily need to be an expert on the stock market to make your money work harder.
Reality: An Investment Professional Will Manage Your Portfolio for You
If you know that your finances could return far higher interest than a savings account, a wealth manager or investment adviser can steer you to the appropriate options.
As an expatriate, the volume of potential opportunities expands, and there are many favourable investment vehicles or low-tax incentives depending on your country of residency.
A capable adviser will suggest the right mixture of products for you, depending on how much you wish to invest, for how long, and your financial aspirations.
Investment Advice for Global Expatriates
Investment performance depends on several variables, but the ideal starting position is always to be equipped with a thorough understanding of your objectives. For example, if you have identified that your pension fund will not provide for the retirement lifestyle you hope for, you can then determine how many years you have to invest and use that information to craft a bespoke investment strategy.
Long-term, a well-managed and diverse investment portfolio is preferable to a savings account since your funds will be consistent with your goals and help you proactively achieve the returns you require.
Please contact Chase Buchanan for further guidance around the investment misconceptions explored here or to start work on a personalised portfolio review.