Speaking to expat clients for about a decade now, most are confused about investing options whilst living overseas.
They hear contrasting information from different sources, about property, stocks, pensions and other investment choices. Worries about tax are also common.
This article will try to speak about some of the investing options for expats, in a clear and straight forward manner.
Needless to say, I can’t review the situation for around 200 countries and nationalities, but will focus on the key points and commonalities.
I will also answer some of the most frequently asked questions and make some concluding remarks.
What are the most frequently sold expat policies?
Savingsplans and offshore bonds, are widely sold to expats. These policies are usually administered from British Overseas Territory such as Isle of Man, Bermuda, Cayman Islands and British Virgin Islands, although some are administered from places such as Ireland and Luxembourg.
These policies are especially widely sold in high density expat cities like Qater, Dubai, Hong Kong, Saudi Arabia and Singapore, but they are sold in over 150 countries globally.
Whilst there are often benefits to such plans, including significant tax advantages for British and Australian expats, many of these expat plans are expensive.
I have reviewed these plans before, so I won’t go into too much detail here. Essentially, the main issue is that these plans are good value if, and only if, you keep contributing into them for the whole term of the investment.
So a 10-year saving plan, as an example, is cheap if you contribute for the whole 120 months. If you fail to contribute for a few months, the plans become more expensive, due to the extra fees levied by the providers.
What are some of the good alternatives to these traditional expat investments?
Many platforms and newer life insurance and banking firms, charge much more reasonable fees, whilst maintaining the tax benefits of the traditional expat plans.
This is especially the case for online firms, that have cut out many of the traditional costs, associated with financial services.
This brings with it significant advantages. Over a 10-year life cycle, a cheaper policy may save you tens, or even hundreds of thousands of pounds.
This will improve the net performance of your investments.
How about local investment solutions?
In a small number of places, local solutions make sense. For example, expats living in the United States should usually consider local solutions, for tax reasons.
In general, however, expats are moving from country to country every 3-5 years. Or even if they are not, they often want to return home eventually.
So local-solutions often don’t make sense for a number of reasons. Firstly, some local solutions aren’t very tax-efficient for expats.
Second, many expats I know are cashing in their policies, every time they move. This isn’t tax or cost-efficient, as capital gains tax applies every time you sell.
There is also the issue of investor protections. Many countries don’t have the sorts of investor protections that many offshore jurisdictions provide, such as Luxembourg, Isle of Man, British Virgin Islands and Bermuda.
Such locations usually have British Government protection (90% deposits protection in the case of Isle of Man), or the segregated accounts system, which negates the need for a guarantee.
Currency can be another issue. I have met countless expats who save and invest in the local currency, only to see a sharp devaluation relative to the USD.
This can happen even in unexpected situations. 10 years ago, most expats in China were interested in local solutions, as they were convinced the RMB would keep rising against the USD.
Subsequently, the RMB has moved from 6:1 to about 7:1 against the USD, and the local stock market has underperformed relative to the USD.
In addition to this, countless local providers have limited investment choice, especially in emerging and frontier markets.
What are the biggest financial mistakes you have seen expats make overseas?
Familiarity-bias is a huge issue. It is human nature to be reassured by investments that others close to you are making, even if you would never have considered that option a few years ago.
Very few expats, as an example, are interested in local property or land on day 1 of their expat adventure.
Over time, after listening to talk of huge returns at dinner parties, many expats get seduced by the chance to get rich quick.
Whilst this can sometimes work, we have to remember that property is a complex legal product, and it isn’t liquid.
Meaning that you can’t just sell it easily. This is an even bigger issue with land investments. In 2014, I met two expats, in Indonesia and Cambodia, that boasted to me about their returns.
Subsequently, they couldn’t sell their land (the expat in Cambodia) or apartment (the expat in Indonesia) for various reasons.
A gain isn’t a gain until you sell, and most developing countries don’t have the sorts of legal systems that we have back home.
Beyond that, the lack of compulsory savings and a “keeping up with the Jones” mentality, means many expats on huge packages are failing to invest much money at it.
Are the big expat banks some of the best options?
Speaking about familiarity, some expats are reassured by familiar-sounding banking names. In general, the bigger banks take advantage of their brand name and charge high fees. Moreover, they aren’t independent.
In practice, this means they will have a limited number of funds available. For example, HSBC Expat is likely to sell HSBC funds, and offer limited solutions, as opposed to cheaper alternatives.
In general, banks are best for banking solutions, and platforms are best for investments. It might seem convenient to have everything under the same roof, but it is usually expensive.
How about expat taxes on investments?
Expat taxes are incredibly complex areas, as it depends on your nationality and where you live. I am not a tax advisor, but I will try to summarize here.
As a generalization, for American expats, it makes sense to invest with a broker back at home. This is unless an expat brokerage firm has a product specific to US expats.
For expats living in America, meaning non-Americans living in the US, it can also make sense to contact a US broker.
For most nationalities, however, investing offshore whilst living overseas, makes the most sense. Sending money home can cause tax issues, as can only focusing on local solutions.
This is especially the case if you need to move cities/countries every 2-5 years, meaning your liquidate your investments every time you move. As capital gains taxes apply when you sell an investment, it is preferable to focus on long-term expat investing.
For British expats, in particular, portfolio bonds can have significant tax advantages, but it does depend on the charging structure chosen.
What about ISAs and other forms of tax-efficient investing?
Most onshore tax-free investment options like ISAs for British people aren’t available for expats unless it is just a short-term assignment.,
If you are spending less than 6 months a year overseas, however, the situation can be a bit different, as your tax residency may be in your home country.
Most onshore brokers also don’t accept expats. For example, Hargreaves Lansdown, the biggest UK brokerage firm, doesn’t accept expats as new clients.
They do keep open accounts for Brits living overseas, who applied before they left the country, provided it isn’t held within an ISA.
How about Bitcoin and alternative investments such as FX?
Many people ask me about these alternative investments, especially if they have seen another expat make great money from them.
Any investment can go up. That in and of itself doesn’t make it a good investment. Countless investments have gone up in the short-term.
Tech stocks that had little or no revenue and business earnings, went up for 5-10 years during the 1990s. Commodities, long-term losers, have also had great 10 year periods.
The point is Bitcoin doesn’t have any business earnings, unlike something like index funds. It doesn’t have a yield either, like Treasuries bonds.
So the only thing holding up the price of Bitcoin is the hope that the person sitting next to you, will want to pay more for it than you paid.
Even if Bitcoin and digital money is the future, that doesn’t mean it is a sensible investment. Using the aforementioned tech stock example, there is no doubt the internet was the future in the 1990s.
The cream of the crop has done great, as shown by the Nasdaq’s fantastic performance, beating even the S&P500 and Dow Jones since 1999.
However, that doesn’t mean the valuations of those tech companies in the 1990s was justified. No matter how good their products and services were, they didn’t have any business earnings, so most tech firms with high valuations in the 1990s went bust.
Only those technology firms with solid business earnings, like Apple and Amazon, who managed to monetize their products and services, managed to avoid bankruptcy and get bigger.
Another example would be pharmaceutical stocks. Imagine tomorrow, a drug was invented that would cure cancer AND reverse ageing…..we can now all live until 150 and live more active lives!
Sounds unrealistic, but it may happen sooner than we think. The point is, this would be a bigger game-changer that even the internet when it comes to global GDP.
In the short-term, the stock would probably soar in value. Maybe even go up by 10,000% or 20,000%.
People would speculate that the healthcare firm that invented the drug, will be able to monetize the drug with greater sales.
If that happens, and business earnings follow, the high valuations may be justified. If for whatever reason, the healthcare firm can’t monetize the invention as much as expected, the price would eventually fall back down.
It might tale 5 or 10 years, but business earnings are the key to long-term stock market rises. It is the tail that wags the dog.
As for FX trading, it is a bad idea entirely. Currencies don’t go up as an asset class. The Euro can’t go up against the USD, at the same time as the USD goes up against the Euro.
Therefore, on each trade, one person loses and one person wins. The same thing happens tomorrow. Compound probability dictates that the more you trade, the statistical chances of losing money increase.
Being a sensible long-term investor always beats being a trader and speculator, long-term.
Why are index funds good investments?
100 years ago, Ford’s Model T was innovative. Now you would need to invent the flying car to be considered innovative.
The point is, humanity does innovate with time. It isn’t always a straight line. We have wars, political and social problems.
Just in the last 100 years, we have had 2 huge global conflicts and countless regional ones. That hasn’t stopped the biggest firms from getting more innovative.
Ultimately, the stock market is just the biggest firms in the country and indeed the world. What is the Dow Jones? It is 30 of the biggest firms in the US. The S&P500? 500 of the biggest firms in the US.
MSCI World is the biggest world firms. Over time, these indexes have always gotten more profitable.
In the short-term speculation can win the day. Over the long-term, business earnings linked to innovation is the key.
Are index funds, therefore, an 100% sure bet?
100% of buy and hold investors have made money in index funds IF they have bought and held the indexes for 20-25+ years.
Investors who hold 2-3 indexes (MSCI World, S&P, FTSE100 as just three examples) are even more likely to make money, especially the case if they have also had a bond index.
Too many people, however, try to time markets. Let’s look at recent times. When Trump was running for election in 2015-2016, many investors said `i want to wait until the election before investing`.
That was when markets were at 16,000-18,000 in the US. He won the election, and markets soared.
That isn’t necessarily a reflection on Trump – indeed markets have always risen long-term as mentioned before and even usually go up short-term under most presidents.
The point is, with markets at 27,300 as I am writing this, there is a reasonable chance US Markets will never again see 16,000-18,000.
They briefly fell to 21,000-22,000 in December but didn’t come close to 18,000, let alone 16,000. That recent example is just one of thousands of historical examples I could have given.
The point is, market timing doesn’t beat time in the market. There is a whole set of academic evidence against it.
Should you pay for advice?
This is entirely a personal decision. It is possible to DIY, and some people do it very well. However, investing is simple but not easy as Warren Buffett once said.
Emotionally speaking, some of the fundamentals of investing like not market timing, isn’t easy. In fact, it is easier said than done.
I am sure you know many people who panicked during the 2008-2009 financial crisis and obviously now regret it. It isn’t easy, after all, to stay calm with sensationalist media stories coming on a daily basis.
That is one reason for the results below, which compares the average investor to the indexes:
So in the same way that many people see the benefit of a personal trainer, rather than doing the gym individually, an advisor can add significant advantages.
What services do you provide?
I provide investment management services. Specializing in lump sums from $75,000, and monthly investments from $600.
Where are your clients based and can you accept me?
I have clients in the UK, Belgium, UAE, China, Australia, South Korea, Hong Kong, Mexico, Canada, Thailand, Singapore and tens of other places.
I can take clients from any country apart from those living in the US. US expats are usually OK.
Can I use expat-specific investment platforms?
Yes, you can. This option often makes sense, especially if you are living a transient lifestyle.
How about property investments which don’t involve direct real estate?
I have previously looked at how expats can invest in property without the hassles of being a landlord in this article
Should you also have offshore or expat banking?
This can be a good idea, for a simple reason of tax implications. If you send a huge lump sum home, after investing for 15 years as an expat, the authorities will want to look into that.
Even if no tax is due, it can cause headaches. Numerous people have been asked to prove that the amount they have received, won’t be a yearly event, and many other things.
You also have the issue of residency. Courts of law, in countless countries including Australia, have asked expats to prove they really are expats.
In other words, the more ties you have to your home country (bank accounts that are frequently being used, property and so on), the more questions are being asked.
This is especially an issue for “digital nomads” who often don’t have tax identification numbers for long periods of time.
Having no tax residency has certainly become more difficult, and it is a misconnection that being out of your country of citizenship for 183 days, means you are authentically tax exempt.
Having offshore banking and investments (merely the investments are outside your country of residency and citizenship) reduces these risks.
Like anything, these rules change, so it is best you use an advisor that is up-top of such things.
What’s the best broker or DIY platform for expats?
This depends on many things. If you are American, the answer might be different to if you are British.
If you plan to stay in just one country for 20 years, your needs may be different from somebody who is moving from country to country, as some brokers only accept clients in specific countries.
Moreover, the brokerage you actually pick, isn’t as important as the investments themselves.
Almost all DIY platforms these days are safe, and well-regulated.
How about for expats on short-term assignments?
It depends how short-term. If you are outside your country of residency for a few months, you are still going to be a tax resident back home.
In this situation, expat specific investments aren’t as useful as the “career expat”.
How about something like robo-advisors?
Robo-ddvisors can be good for basic needs, and indeed many advisors are using them to automate some basic tasks.
The issue with the technology however, is that it doesn’t account for your very specific situation.
It also doesn’t do financial planning, such as budgeting. It more focuses on pure investment advisory advice.
So for many expats, the technology works best, when an advisor uses it, in tandem with more traditional advice.
It is, however, allowing many expat advisors to have global client banks, and negating the need for face-to-face advice.
This isn’t the only technology allowing for the more efficient use of man power.
In recent years, I seldom meet clients face-to-face, due to new technology.
What are your contact details?
My main email is [email protected]. I am also available on numerous apps, such as WhatsApp.
In general, it is best to focus on expat-specific investing, rather than local investing.
This is unless you are American, or an expat living in America, although different local circumstances can exist in different countries, and laws can always change.
Long-term and low-cost investing beats market timing and speculation, or for that matter keeping money in the bank.
For expats with existing policies overseas, you may find the following article useful.
As some of my more frequent readers know, I have spent more time in Japan and China, than any other country apart from the UK.
After 8 years living overseas, what are the key mistakes I see expats make when it comes to financial planning, investing and business?
The information below are the most common mistakes I have seen, and how you can mitigate them.
1. Keeping up with the Jones’
Japan isn’t as obsessed with consumption as Singapore, Hong Kong or Dubai. Despite having more millionaires than any other city on some metrics (although not on a per capita basis), Japanese people aren’t flashy as a generalization.
That doesn’t mean a minority aren’t, or your fellow expats aren’t. Many expats are on big packages, but remember that Tokyo is an expensive city, if you factor in the tax and rents.
$200,000-$500,000 a year might sound like a lot of money to most people, but once you adjust for the taxes, cost of accommodation and sometimes international schooling, it can go quickly if you put your mind to it.
I have seen expats on 250,000-350,000 yen a month ($2,300-$3,300 or so) gradually increase their wealth, and others on $500,000 a year, who are in debt or have zero wealth!
Remember wealth is net income – expenditure x compounded returns. If you spend more than you make, to impress people you don’t even like, you will get into trouble.
So your spending and investment habits make a bigger difference to wealth than your income.
Just ask Mike Tyson, Boris Becker or Michael Jackson- having a super high salary isn’t an automatic passport to riches!
2. Not reviewing inheritance and estate planning
The Japanese Government can potentially tax you significantly if you die. So planning is key if you are going to be a long-term Japanese expat.
This is especially the case considering these rules are always changing.
3. Focusing on local real estate
Real estate doesn’t outperform markets long-term, in most cities and situations. The biggest advantages of real estate are leverage and rental yields, but that has become harder to profit from in Japan.
There used to be a time when capital values were stagnant, but using Airbnb was a simple way to get good rental yields in Tokyo and beyond.
That has gotten harder with new government rules and restrictions. In general, unless you are a professional real estate investor, it is best to use real estate as a home or just rent.
If you are in Japan on a short-term contract, renting makes sense. If you plan to stay for 20-30 years, then buying on a mortgage can be cheaper.
4. Not reviewing your existing investments
Most expats in Japan have expat investments held offshore. Some people are getting good returns, and some are not.
Markets have performed well for 10 years or longer, so your portfolio should be performing well as well.
You should also review your pension situation in your home country, to see if you can limit tax.
For British people, and some other nationalities, there can be significant tax benefits to transferring a pension overseas.
This is especially the case for larger pension pots.
5. Focusing on local solutions for your investments
As somebody who has lived in Japan, I can say that it makes no difference where your advisors lives, in this day and age.
What matters is things like fees, how long you invest for, what you are invested in and how easily you can communicate with your advisor.
Some expats tend to localize too much and get used to overly conservative business norms, like focusing on face-to-face communication.
They meet an advisor at an event, or get recommended to use X and Y company, and don’t consider the alternatives such as an online advisor.
Ultimately an online advisor can do things more quickly, efficiently and cheaply compared to somebody with a big flash $30,000 a month office in Roppongi.
That money comes from clients money. If they are wasting time with endless chit chat, which tends to come hand-in-hand with face-to-face meetings, I doubt they can respond as quickly to your emails and inquiries as somebody who is using the latest technology remotely.
I should know. I used to do things the old-fashioned way and know how inefficient it is compared to the alternative where clients can flick me a message on WhatsApp and I can reply within hours at most.
6. Giving money to a partner
Speaking about localization, unless your wife (or indeed husband) is financially qualified, there is no reason for them to look after the money.
It makes sense for decisions to be jointly made, or for the wage earner to make those decisions with the help of an advisor.
Giving money to a partner seldom works out well, and causes untold complications if you get divorced.
Many expats, especially men, tend to justify this norm as being a Japanese traditional. It may be a tradition to give money to your wife….that doesn’t make it rational.
7. Leaving money in the bank
The bank pays people 0% interest in Japan. This is lower than inflation and even lower than the US and some other countries. So you are losing money with this tactic.
Markets go up and down, but the long-term has always been good. As Buffett pointed out 1-2 years ago, $10,000 invested in the S&P in 1941, would be worth around $52m today!
For that matter, $10,000 invested in the early 1990s, would be worth $100,000 today. There is no reason to be afraid of short-term fluctuations in the market, especially if you have government bonds in your portfolio.
8. For business owners – not focusing beyond Japan
As mentioned before, your wealth is net income – expenditure x compounded returns. For business owners, you have a great chance to increase your wealth, compared to a salaried employee.
It isn’t easy in a stagnant market, however, so many Japan-based business-owners need to be enterprising. Many fail in this regard and become insular.
In Singapore and various places in SE Asia, it is normal for people to use their locations as a hub. Business owners, who just live in location A, but target location B or indeed the world, from their laptops.
In Japan, 95%+ of expats seem to be either salaried employees, businesses focused on Japan or those focused on things like inbound tourism – Chinese and other foreign tourists who are coming to Japan on holiday.
What I seldom see in Japan is enterprising people who use Japan as a base for global business.
I have met a few. I met one man who only came to Japan due to his wife being a local. He uses Japan merely as a home – a nice and comfortable place to live.
He works from work, on his laptop, and doesn’t target the local market any more than any other market. Only 2% of his revenue comes from the local market.
Likewise, for me, my location is irrelevant. That isn’t just words, I have gained clients in 27 countries (and 5 continents) in the last 12 months alone, and I haven’t focused on local markets since 2014.
Not since 2014 have I gained the majority of my clients in the country where I was resident. The fact is, we live in completely different times now with the digital age.
This isn’t just affecting business. Even 5-10 years ago, people would have found it incredible, to think that a man relying on Twitter, and being outspent by his political rival 2:1-3:1, could beat his political opponent in the Presidential Elections of 2016!
And then barely a few months ago, an enterprising 28-year-old Democrat, Alexandria Ocasio-Cortez, beat the 4th highest ranking Democrat by using online tools.
That could never have happened in the 1950s, 1980s, 1990s or even 10 years ago when this digital revolution was just getting started.
The digital age is affecting business as much as politics. The business practices from the last 200-300 years are changing. We are in the middle of different age, a digital revolution.
The internet has been around for decades, but only in the last 5-10 years, are we doing more and more things online.
What is the first thing you do now? You Google probably, just as I do! And unlike 15 years ago when we only trusted Amazon and eBay and big companies, these days people rely on online recommendations and the authenticity of a personal brand/relationship.
When I am the buyer, the LAST thing I want to do, is takethe subway and meet you face-to-face. I want credibility through online recommendations.
I want speed and accuracy. 20 online recommendations on LinkedIn matter 10x more to me than how you are dressed, or which office you work from.
Many people feel the same. And yet, perhaps due to Japan’s old-school culture, many long-term expats in Japan still focus on business cards, face-to-face communication, outdated rituals and only focusing on the local market.
I remember I had a chat with a country manager of a major MNC in Japan a few years ago. He told me he doesn’t like to hire expats who have lived in Japan for more than 5 years, or especially 7 years.
The reason? They become less enterprising. More conservative and localized. Try to avoid this trap.
So If you have a business in Japan, focus on the world from your fingertips, not one market with stagnant growth!
Of course, not all businesses can be scaled online. Many can though.
8. Underestimating certain things
Underestimating the cost of living, how much you need to save for retirement and how many years you will live in retirement, are mistakes made by expats in Japan and beyond.
It is easy to get into the habit of wishful thinking, but just remember we are also in changing times when it comes to medical technology.
You may easily have 45 years+ in retirement!
9. Getting stuck in a rut
Especially if you own your own business, executing ideas can be key. Ideas in isolation are irrelevant. Execution matters.
Effective execution becomes harder when you associate with negative and toxic people or get into regular habits.
I found moving from country to country every 2-3 years, and regularly speaking to people in different industries online, can help keep my brain fresh.
Of course, this option isn’t available to everybody, but I have found some expats come to Japan full of energy and vigour, and soon become negative after 3-7 years.
That negativity can indirectly affect sales, business and even spending habits – a lot of the aforementioned bad spending habits is caused by boredom.
10. Putting all your eggs in one basket – especially illiquid assets
Too many expats in Japan, or indeed globally, just invest in their business. Or just in property locally or back home. Or just in stocks.
Realistically, you can’t rely on an illiquid asset in retirement. If you get sick tomorrow, could you sell your house or business?
Especially if your business is highly related to your personal brand, contacts and skills, why would somebody want to buy that business, if you aren’t going to be around?
I have met countless people who have boasted to me about land, property or business valuations but have failed to sell those assets when they most need to.
It makes sense to have assets in relatively liquid stock and bond market portfolios, to limit the risks, whilst still gaining from rising markets long-term.
That doesn’t mean you shouldn’t invest in your business. Reinvesting money into your business can have a great return on investment, especially when your business is small and growing fast.
But again, we are in changing times. So cheap and free techniques can be more effective in 2019, than expensive options.
I know countless people today making more money from cheap Facebook ads than they do from $10,000 promotions.
I also know many people who are able to make more money from writing articles, than they do going to events.
[email protected] is my email and I am online on a range of apps. My services range from monthly and lump sum investments, through to reviewing existing investment portfolios to see if I can offer greater growth.
A range of client recommendations can be found online
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