(This article was last updated on January 1, 2022.)
This article is aimed at Australians who have embarked on a career in another part of the world. It is worth mentioning this to avoid confusion because the term ‘Australian expatriate’ is sometimes used to refer to non-Australian citizens who live and work in Australia.
So, if you are an Aussie who has moved overseas and who wants to consider the best investment options – both at home and abroad – then this article is for you.
Before I begin, though, it is worth mentioning that I am not a professional tax advisor. Although the issue of tax will come up frequently in this guide, my expertise lies with tax-efficient investments.
I have been living and working overseas for many years and my expertise can help Australians no matter where they are residing and regardless of whether they see themselves returning to the mother country any time soon, if at all!
If you like the idea of tax-efficient investing while working overseas but do not have the time to read this article, then feel free to reach out to me.
I am always pleased to discuss investment options with people who are no longer residents in their home country. For now, however, we will look at the three main options that Aussie expats have when dealing with their investments. They are:
- Making localised investments in the country you are living in at the moment.
- Looking for sound investment opportunities back in Australia.
- Investing in a third country – the so-called portable option.
I will take you through the pros and cons of each option later in this article, making particular reference to matters that will be of special interest to expat Australians.
Firstly, however, it is worth examining the Australian expatriate community a little more closely to determine exactly who we are talking about.
Before beginning, it should be noted that whilst nothing written here should be considered as tax or any other kind of advice, we believe the information is correct at the time of writing.
Table of Contents
Where Are Australian Expats located?
These days, well over one per cent of the total number of Australian citizens live outside of the country. As you may know, the Trans-Tasman Travel Arrangement means that Australians are freely able to migrate to New Zealand but this only accounts for about 70,000 Aussies.
In fact, over a third of all Australians living in another country are currently in the UK. Significantly, they are dispersed each of the four constituent parts of the country, not just England.
The next largest group of expat Aussies are working in the United States. This is also hardly a surprise when you consider the common language in these countries.
Taken as a whole, however, the European Union accounts for about 100,000 overseas Australians with many residing in Greece, primarily due to family ties in that country.
Hong Kong, Canada and Lebanon also have significant numbers of Australians living there. South-East Asia is also popular among Aussies with most working in countries like Vietnam, Singapore and Thailand.
According to the latest estimates, there are also about 15,000 Australians who currently reside in China and there is a similar number in the United Arab Emirates.
So, as you can see, the Australian diaspora – as the expatriate community is sometimes called – is fairly diverse. Some people are only working a few years overseas while travelling. Others have laid down significant roots and may even have started families in their adopted country.
Some will have plans to return to Australia while others may continue to hop around the globe until they reach retirement age. Others may decide never to come back.
What this means – in terms of investing – is that there is no single piece of advice that will make sense to every Australian expat. Everyone’s individual and financial circumstances will be unique for starters. Then, there is the issue of what financial goals you might have compared to someone else.
This is why tailored advice on investing can be so beneficial. Not only will it help you to invest in a way that suits your current lifestyle – no matter where in the world you happen to be working – but it will also mean achieving financial ambitions that will complement your future plans, whether or not they include a return to Australia.
That said, there are three main options for Australians who are currently overseas to weigh up. As previously mentioned, they involve investing at home, in the adopted country or a third country. Which might be right for you?
Investing In Your Country of Residence
What are the benefits of local investing?
This option may sound like it is the most straightforward. It certainly can be for some Australian expats but there are disadvantages to consider, too. Firstly, though, let’s look at why this can be a favourable approach.
To begin with, investing in your adopted country or a third country will often be a tax-efficient way to proceed.
This is certainly the case in the United States where the IRS – the federal tax authorities there – make it harder to use investment brokers outside of the country.
It may also be that investing where you live and work makes sense because you are earning in the local currency and do not want to go to the expense of exchanging your earnings into another currency so you can make regular, monthly investment contributions.
Equally, you might have an employer who makes localised investments more attractive. For example, you might be invited to join a company pension scheme to which your employer will also make contributions that match any money that you put into it.
Some people will also find that they have settled in their adopted country and want to make longer-term investments where they live. This might be the case if you have married a local, for example, and want to buy property and lay down some roots.
In such cases, you are really living the lifestyle of an immigrant than an expat but you could, of course, retain the idea of eventually returning home, perhaps once your children have grown up and flown the nest.
Equally, you might be living somewhere that means localised investments in stocks and shares is particularly attractive. Certainly, Australians living and working in the City of London might consider it to be only natural to make such investments, especially if they have some experience of the financial sector.
What are the risks of investing locally?There are some considerable downsides to making investments solely on the basis that they happen to be available in the country you are currently living in.
Firstly, tax efficiency cannot be guaranteed by investing where you are residing. The level of personal tax you might pay on your earnings in the UK, Canada or the EU could change at any time making local pensions less attractive, for example.
In addition, some countries which have less developed financial institutions will often not be regulated as well. In turn, this could mean that potentially attractive savings accounts and other investment vehicles are not as great as they seem.
Of course, expats who know they will want to move to another country in a few years time or return home to continue their careers in Australia won’t want to tie their money up in one location.
Building in a degree of portability with finances is important to all expatriate communities but especially to Australians who have a reputation for going walkabout, after all.
Then, there is the issue of what might be referred to as growth yield. All too often Australian expats working in developing countries can have their heads turned by what might look like tremendous investment returns at first but which, in reality, turn out to be high-risk options.
It is also worth bearing in mind that some brokerage systems will mean you have to sell an investment in an adopted country if you no longer live there. In turn, this can lead to further financial exposure to things like local capital gains tax.
Another downside of local investments is that they are sometimes priced in a way that diminishes their benefit. Investment brokers in some countries that Australians work in can charge hefty fees for their services.
Finally, tax-efficient investments in overseas countries tend to only work out that way if they are made for the long term. If you want more flexibility in your life – either to start a family or to move to another part of the world – then it is likely that the investment structure will not be as efficient as it otherwise could be.
This last point should be of particular interest to Australians who might want to continue exploring the world as well as those who know in their heart of hearts that they will return home at some point in the future.
Investing in Australia as an Expatriate
What are the pros of investing in Australia?
There are some attractive things about investing at home while living and working in another country. These will vary depending on whether or not you are considered a non-resident for tax purposes.
Since a large proportion of Australian expats will fall into the non-resident tax category, I will proceed on that assumption but bear in mind that the rules are very different for Australian tax payers who happen to live and work overseas for part of the year.
To begin with, investing in shares in Australia can be tax-efficient if you continue to reside elsewhere. Non-residents can also avoid some of the Australian Tax Office’s rules on capital gains tax while you are outside of the country.
Furthermore, the rules surrounding Australian expatriate superannuation investments are the same for non-residents as they are for people at home so long as the investment vehicle used meets the requirements of the law as laid out in the Superannuation Industry (Supervision) Act.
Of course, investing in financial products in the Australian market also makes a great deal of sense if you know that you are going to return home in the next few years. This will mean that your finances are set up to meet the requirements of your lifestyle as it will soon be.
What about the cons?
Aussie expats will also find that there are notable downsides associated with investment portfolios that are put together at home.
Firstly, it is important to note that some types of property investments in Australia are not as tax-efficient as they might seem when you start looking into the detail of them. True, it is possible to accumulate tax credits on properties that cost more to maintain than they earn in rental yields, for example.
However, many such investments that are run profitably will come with a tax bill that makes them less attractive than they seemed to be at first.
Equally, investing in property in Australia often requires a great deal of localised knowledge. If you have been out of the country for a while, then what you think you know about a local property market may well be out of date which could lead to poor investment decision making.
Of course, non-residents of Australia who work overseas may complicate their status if they make certain types of investment, especially those which require you to return to the country on a frequent basis to manage them.
In turn, this could lead to a complication of your tax issues both at home and in your adopted country of residence. In the worst cases, it is even possible you end up being liable for tax in both countries and effectively pay twice!
Some investment brokers are not geared up for the additional needs of the expatriate community. Indeed, some will simply turn down non-residents or charge them a premium for their services.
You can find specialist financial services in Australia that cater to the needs of expats but it is worth bearing in mind that the advice on offer is not always in the best interests of Aussies living abroad given that their plans may not remain the same in the future as they appear to be now.
Investing in Another Country (third country) While Working Overseas
This is where our service, which you can apply for here, makes sense.
The third main option available to expatriates is to invest in a third country, neither Australia nor the adopted one.
This is something that is becoming increasingly popular among expat communities all over the world, not just with the Australian diaspora.
I specialise in putting together investment portfolios for expats from Canada, the UK, South Africa, the US and other developed countries, including, of course, Australia.
One of the main reasons to explore this sort of investment route is that many of the negative factors associated with portfolios in the home country or the adopted one simply disappear.
For example, if you choose to remain in the country you are currently working in, then having your investments in a third country, not in Australia, should make no negative impact on your changing plans.
Equally, if you choose to move to another country – or even return home – sooner than you had originally intended, then you won’t face any undue issues related to localised investments because they will already be held for you overseas.
For example, you won’t have to worry about selling investments before they have matured. Nor will you face the common problem of losing out by needing to convert your investment portfolio into another currency and – perhaps – place it under a new tax regime.
Another major plus point of a more portable investment solution is that it means you can pay into your investment portfolio when it suits you.
Thanks to modern technology, you can make payments into third country accounts online and often with any currency you like, so it is the ideal way forward for Aussie expats who plan on moving from one country to the next.
Even if you are more settled where you live, this flexibility will allow for changes in life circumstances, such as taking a break from work for a while or wanting to put more away for your future following a promotion and pay rise, for instance.
Furthermore, capital gains taxes are commonly applied at the end of the investment when you close your account. Therefore, on the assumption that you hold your investment, as I’d recommend, you can invest in a highly tax-efficient manner.
Indeed, if you happen to reside in a country with no capital gains tax, such as many in the Middle East and on the Asian Pacific rim, you can legitimately avoid this form of tax by taking this option. This provides Aussie expats with a significant advantage compared to either localised or Australia-based investment options.
Finally, many of the investment platforms that offer this sort of portable service are geared up to support expatriates. In most cases, this means being able to obtain specialist advice for those who live outside of their home country.
Taking action has became more important due to skyrocketing inflation.
Whilst there are benefits associated with investing locally if you live in the United States of America, or back in Australia if you plan to go back home after a few months or years, there are countless benefits associated with portable (third country) investments that are specialised in the expat niche.
Pained by financial indecision? Want to invest with Adam?
Adam is an internationally recognised author on financial matters, with over 668.8 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.
Adam is an internationally recognized author on financial matters, with over 329.1 million answers views on Quora.com and a widely sold book on Amazon
I am the most viewed writer on Quora.com for financial matters, with over 222.2 million answer views and counting.
In the answers below I speak about:
- What is my favourite stock strategy and why?
- How common are “rags to riches stories”, and how should we define riches anyway?
- Should people invest in one go, as a lump sum, or monthly invest?
- Do people really sacrifice their health for wealth?
Below is a preview of the article
There are different ways to look at this question. The simple answer is you should always invest what you have upfront.
Market timing doesn’t work. Even investing 100% of what you have over a period of say 10 years (dollar cost averaging yay investing monthly) only beats lump sum investing 33% of the time:
The main reasons for that are:
- Markets do usually go up over time. Usually they hit records every few months or years. There are exceptions to that. Even the best performing markets like the US Stock Markets have had 10–15 year periods where they are stagnant. During such periods dollar cost averaging can win. Another example would be the Japanese stock market. People who have invested monthly in the market since the bubble have done much better.
- In reality, we need to dollar cost average anyway, because 99% of us either have a salary or will need to put in every few months or year. Hardly anybody only has one big lump sum which needs to last forever.
- If you invest in one big go, dividends can be reinvested to a greater extent.
- It is possible to construct a portfolio which is diversified enough in stocks and bonds to be safe long-term.
- Markets tend to skyrocket during certain limited periods. So, November 2020 was such an example. Many stock markets rose 15% in one month. Often times, if you miss out on those breakthroughs, markets won’t return back to the previous levels, even during a crash. It depends on the crash of course, and many things, but that can be the trend.
- If markets crash hard, sometimes they only stay at that low point for a few days.
- If you try to dip your toes in, even if you do time the markets well, you may miss out. Let me give you an example. Let’s say person 1 had $500,000 on January 1, 2020. They were worried about markets. They then saw markets crash in late-Feb/March. This lead to them buying at the very best time – in other words on the best possible day to buy. All of this is unrealistic of course because very few people can do perfect timing, but I am merely using this as an example. Now let’s say they invest just $50,000 as they are worried markets will crash again. They leave the $450,000 in cash. How much would their portfolio be worth now? About $540,000 because the $450,000 was in cash, earning 0%. The $50,000 would have increased to about $90,000. In comparison, somebody who invested $500,000 in the S&P500 on January 1, 2020, would now be sitting on about $520,000. So, the first person made 90% quickly, but on a small amount of money,
All of this means that it is most productive to invest what you have asap as a lump sum, and then invest monthly from new, fresh, money.
With that being said, it does make sense to keep some money as an emergency fund.
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