One of the largest attractions for heading overseas to work as an expat is for the lucrative opportunity such an assignment will bring, which means understanding how to invest while living abroad will help you to enjoy the best returns.
There are a wide range of strategies that are potentially available to help an expat capitalise on investment opportunities outside of their home country.
However, many expats will simply decide to invest in their home country because that’s an investment environment that they already know and can appreciate.The investment criteria an expat should consider include:
• How much you can invest
• Your attitude to risk
• Tax issues
• Access to money
Investing in your home country
By having a strategy of investing in their home country, the expat may be neglecting more potentially rewarding investment opportunities elsewhere.
For instance, the investment strategy for an expat could include:
• Renting out their home
• Investing rental income in stocks and shares
• Buying an investment buy to let property
• Investing the profits from a buy to let property
However, expats could also be looking at international and offshore investments, but what do these terms mean?
While many expats may believe that offshore investment might be a legally dubious way of investing, this would be a mistake. International investing and offshore investing are different terms which essentially mean the same thing. By moving money offshore, the expat is moving cash to a jurisdiction or another country to the one in which they are living.
It’s also advisable that expats avoid investing in those countries that have a poor financial regulation framework or in politically unstable countries.
Most expats tend to use international jurisdictions and offshore centres that come with high levels of legally recognised consumer protection.
These investments are then completely independent geographically and regardless of where the expat may be living, they can be managed easily by them or their wealth manager.
US expats investing overseas
However, US expats looking to invest overseas should bear in mind their legal obligations under the Foreign Account Tax Compliance Act (FATCA).
With more than nine million US expats living overseas they will have to declare their investments, but many financial firms and banks have refused to have American clients because they are compelled under the law to report their accounts to the IRS.
So, the strategy for successful investing will ensure that when the expat comes to retire, or should they want to repatriate to their home country, their investment is easily accessible for these purposes.
But why should expats contemplate making offshore investment opportunities?
Expats can enjoy:
• Better financial opportunities
• Unrestricted returns
• Diversifying their investment spread
This fear of the unknown of putting money into offshore investments is a widely-recognised issue and financial advisers Fidelity Investment found that 72% of US expats opted to keep their investments within the US.
Their survey revealed that one in three of all expat investors had no financial exposure to international stocks and shares whatsoever.
To highlight the potential loss of income, Fidelity analysed what a portfolio for a US expat would look like under the circumstances of spreading their investment strategy to include offshore opportunities.
They found that if they had invested 70% of their money into US stocks since 1950 and 30% into international stocks they would have returned every year around 11.4%.
For an expat who had invested all of their money into an S&P 500 portfolio – that’s the US stock market – they would have earned 2% less and enjoyed 10% less risk.
On top of this, expats looking to move money overseas should consider carefully which countries they will use because the dangers include:
• The country’s economy crashing
• The country’s currency plummeting
However, many foreign companies offer better dividends which, over the long term, is a huge attraction to an expat looking to place their hard-earned income in a safe location to earn more than in their home country.
All of these are important considerations but another aspect is that most countries have endured low interest rates for several years which have impacted on the returns for savings as a result.
It’s easier now for expats to manage their portfolio, but knowing where and when to invest can be a tricky choice.
To help expats, as well as other investors, there are a growing number of index trackers and exchange traded funds (ETFs) which effectively spread the investment around several potentially lucrative investment opportunities.
There’s no doubt that expats who don’t have international financial know-how should take a closer look at international index trackers; there are a huge number of these available around the world.
Particularly when the tracker is structured effectively and the expat’s tax status is taken into account, these can be just as effective as an ISA for a non-resident British expat.
Developing an international investment portfolio
It’s now easier than it’s ever been before to develop an international investment portfolio that will deliver the returns the expat is looking for; they should consider:
• Investing in fast-growing world economies for impressive returns
• Diversifying their investments into a variety of geographic and economic conditions to reduce risk
• Offshore investments can be portable with one investment fund provider
• Opportunity to enjoy high returns with lower tax while living overseas
The tax efficiency of investing while living overseas is a crucial consideration and one that should not be ignored; expats are in a unique position in that they have the money to invest, can invest in safe offshore environments and enjoy a tax efficient investment.
Finally, all expats looking to invest should appreciate that investments can rise as well as fall so speaking with a specialist financial adviser is always the best advice to help reduce investment risk.
For many expats, particularly those who have an international bank account, their bank may offer a financial wealth adviser who can help with more investment advice, whereas for other expats it is an easy process to find a reputable chartered financial planner looking to give impartial guidance and advice for successful expat investing.
More information
HSBC offers a helpful guide on making expat investments.