I often write on Quora.com, where I am the most viewed writer on financial matters, with over 252.7 million views in recent years.
In the answers below I focused on the following topics:
- As a British expat in my mid 20’s what tips can you give to retire in your 40’s?
- Why can US expats overseas invest more (sometimes) than they can when they live in America?
- What changes can we expect expats in the Middle East to face in the next few years or decade?
- How can stock markets go up during a pandemic?
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Firstly, you have to be much more motivated overseas.
It is true that you can get paid more, and pay less tax, in numerous industries as an expat.
Yet you don’t usually have these things:
- A company pension
- National insurance contributions
- Sometimes paying into a mortgage
The average person in the UK, even somebody who is very bad at saving and investing, often has to go into auto-enrollment, needs to pay national insurance and has a mortgage.
Even the government’s official figures show that up to half the population could have private pensions of 1million or above at age 65, now we have gone away from final salary schemes and towards defined benefits.
Therefore, what you need to do is be very aggressive. Invest much more than you would have done in the UK.
Other tips I can give are:
- Emigrate to a low cost of living country when you retire. This will make the process easier
- Get advice or do a lot of reading yourself. Read about things like the 4% rule of retirement, the best assets to invest in and so on
- Just as you go for an MOT on your car, it makes sense to check your financial situation. You need to get what you already have checked out as many people do high-risk things.
- Don’t try to time the stock markets, speculate on individual stocks unless you really know what you are doing or watch the financial news. Just invest every month into the whole market through investments like the S&P500 or MSCI World and forget about it. If you do that, you will do well, even if some years are negative.
- It doesn’t make sense to second guess what markets will do in the next twenty years, or the inflation rate. But what I would do go onto an online calculator. Put in how much you have now, how much you will invest every year or month, assume an average inflation rate of 2%-3% per year and markets will do inflation +4% on average. Also, based on a safe withdrawal rate of 4% per year, you can work out how much income you can have from that pot. That will give you a guide about how much you might need to save and invest. If you want to be cautious, you can increase the amounts by 10%.
- Avoid UK property unless you can outsource it to a professional, or you are a professional yourself in real estate. These days, with new rules on taxes, it has become hard for non-residents (including expats) to make a lot of money from property. For one thing, unless you have enough money to buy 7–8 properties and put it in a PLC company, it isn’t tax or cost-efficient to own properties any more.
- Get tips online from others who have done this, and see what they did.
- Control your spending habits and try to scale your income. Don’t just spend loads of extra money if you earn more, which is what most people do in their 30s.
- When you are young, invest more in stock market ETFs and other assets which can yield high returns. Bonds and other fixed-return assets can be a part of your portfolio, but 10% is enough when you are young.
Also, focus on investing in portable investment plans. As an expat, you might move from country to country.
You need to create something which will move with you, as it reduces the chances of capital gains taxes and other things.
Many people are obsessed with gross salary, but taxes and cost of living can be key for people who want to save money.
The US is quite unique amongst developed countries in that it still taxes expats living overseas above $108,700.
For most expats, or for the record number of Americans who renounce citizenship every year for tax reasons, it is possible to change residency and legally pay 0% tax.
If a British person, or American who is now (legally speaking) an ex-American, moves to Monaco, the UAE, Saudi Arabia or many other places, a 0% rate of tax can be applied, assuming you don’t retain too many ties to your home country.
Some territorial tax countries in South East Asia and beyond also don’t tax overseas income, making a 0% rate possible in some situations.
Even if we ignore the potential tax benefits, there is a huge difference between cost of living.
In some parts of Eastern Europe, Latin America and South East Asia, you can live a decent middle-class life for $1,500-$3,000 a month, depending on the location and your lifestyle.
In certain parts of California or NYC you can’t even rent a box for that amount of money.
For people with private businesses, moreover, it can be easier to make more money in overseas markets which are less competitive.
Finally, you have the “hardship” element. If you are an engineer in oil&gas, already earning decent money, it is unlikely you would take a position in Iraq or another war zone unless the pay was much better.
However, in the real world, many expats don’t save and invest more. Back home, there is often a compulsory nature to investing.
This is true in many European countries, but is also true in the US and Canada.
People often invest into government and private schemes because it is the path of least resistance.
When people go overseas, often they need to save and invest by themselves, which relies on some self-motivation.
Can British expats in Dubai stay to live & work there forever, & if not, what if they have sold their houses, established a business in the UAE, raised a family there & have no job or anything to return to in the UK?
Dubai, and the UAE in general, is built on short-term expats coming and leaving.
Most come for a few years. A few last 10–20 years. Even fewer last “forever”.
So until recently, I think the answer was technically no. It wasn’t easy for people to retire in the UAE, even if it was possible maybe in some situations, like if you married a local.
There has been reforms made recently which will make it easier to do this, and even maybe get citizenship of the UAE.
The one big thing that might change in the next few years is tax rules which could disincentivize living in places like the UAE.
First, we have had the minimum corporate tax proposal by the US and its treasury secretary, Janet Yellen, which has been on the cards at the OECD level for two years:
That could raise the tax levels for companies in the UAE, depending on the details.
Even if it only affects the big boys to start with, it could eventually affect everybody if it comes in.
Second, we have had countries like South Africa and China going (de facto) for US-style citizenship-based taxation by the back door.
More countries like the UK could follow suit, or there could be OECD proposals.
What starts as a global minimum corporate tax could become:
- Global minimum income taxes. In the same way as host governments could be able to “top up” corporate taxes, they could do the same with income taxes
- Even global minimum wealth taxes
If those things come in, the incentives to permanently reside in the UAE would go down.
Right now, all a British person with a private entity needs to do to legally reduce most forms of taxes to zero is to move to a place like the UAE, Monaco and many others, and incorporate the business there.
If that changes and there would be minimum taxes, the incentives to move with be fewer.
Remember too, that these new rules would also create hassles due to the regulations that would come with the taxes.
So, even people who wanted to remain for non-tax reasons might find themselves being asked for loads of extra paperwork by government authorities, banks etc.
When the US bought in the Foreign Account Tax Compliance Act (FATCA) regulations that is exactly what happened.
Even people who didn’t care about the rules when they first came out because “they don’t mind being transparent”, soon complained when their banks asked for extra forms, and they were restricted from investing in certain products.
I am not sure when this question was first asked, but I would make numerous points.
Firstly, as I have said numerous times, historically markets have increased during pandemics.
Markets have usually increased in any case (the S&P500 has risen on about 72% of years and fallen 28% of the times), so I am not saying that they rose in these cases due to the pandemics. They might have increased in spite of the pandemics.
Remember too, that World War One was between 1914–1918. So, the Spanish Flu happened during this event, and markets did relatively OK.
“To put it much too bloodlessly, we have run a bunch of natural experiments on market reaction to changes in perceived security risk.
- The risk of nuclear war arguably went down a lot in the immediate aftermath of the Cold War ending in 1989, and then rose significantly as nuclear weapons technology proliferated to unstable or inimical regimes more recently. Average national savings rates moved little in response to these stark changes in threat, as opposed to the large changes that business cycles and the financial crisis had.
- Large withdrawals of US and Soviet troops from locations around the world, notably Germany, Eastern Europe, and the Philippines, seemed to matter little for economic outcomes on their own in terms of geopolitical risk (though of course their withdrawal allowed the marketization of Eastern Europe).
- The 9/11 attacks on the United States led to costly and widespread imposition of new standards of homeland security, including at the borders with Canada and Mexico, and imposing transactions costs and time burdens on travelers and shippers. According to most polls, Americans felt less rather than more safe, and if anything overestimated the risk of terrorism. Neither of these facts led to any deterrence of the great market bubbles of the early and mid 2000s.
- Countries truly beset by ongoing terrorist threats, ranging from Colombia to India to Israel to Thailand to Turkey, saw increases in inwards direct investment and sustained stock market appreciation. Of course, some of this was due to the success of various anti-terrorism and security measures undertaken by their governments—and when there was outright civil war in Colombia, there was an economic cost to go with the horrible human toll. But geopolitical risk being higher on an ongoing basis for these economies did not make their stock indices underperform over time.
Even large-scale conflict and the tides of history rarely change who is rich, and that is probably a large reason why stock markets do not respond to geopolitical risk very much
There is zero academic evidence which links falling stock markets to events like pandemics, wars, government shutdowns, elections (look at rising markets in 2016 and 2020 which few expected”.
There is also little or no correlation between GDP growth and markets. US markets had their worst period in the last decade in 2018, when the economy performed best.
It is true that markets can sometimes panic unexpectedly. They panicked during the first lockdown (Feb/March 2020) but not during the second European lockdowns in October/November.
They didn’t panic during the 2000 or 2020 disputed elections, or during the unexpected election result in 2016, but that doesn’t mean they never will.
The point is, that doesn’t mean some kind of causation or predictor of future events.
Besides, the economy is now strong in some of the biggest economies in the world like the US.
The recovery is far quicker than 2008–2009 even though the original shock was bigger.
So, even if there was a correlation between GDP and stocks, the economy is now back, and the pandemic seems to be coming to an end (but who knows) in most developed countries which are vaccinating people.
I know it sounds hard to believe that a lot of market movements are random, and can’t be predicted, but that is what the evidence shows.
That is one reason of many why it is better to just invest when you have money and forget about it.
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Adam is an internationally recognised author on financial matters, with over 252.7 million answers views on Quora.com and a widely sold book on Amazon
In the answer below, taken from my online Quora.com answers, I spoke about the following issues and topics:
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- What are the pros and cons of living in Shanghai as a European expat with a family? I go over some of the more unexpected pros and cons alongside the obvious ones.
- What is the best city to live in Asia for Western people?
- What is the best Index Fund that pays dividends, if such a thing exists in reality.
To read more click on the link below.