How To Invest While Living Abroad
If you are looking to invest as an expat or high-net-worth individual, which is what I specialize in, you can email me (advice@adamfayed.com) or WhatsApp (+44-7393-450-837).
Introduction
Here’s how to invest while living abroad.
While many expats enjoy living “in the moment,” many also have financial objectives like starting a retirement investment account and purchasing a home.
If you’re trying to build an investment portfolio, it can be extremely confusing to even get started because each country has different laws regarding foreign investments!
One of the best ways to put your money to work for you and amass wealth over time is through investing. When residing abroad, it can be difficult to know which financial options are best for you.
This article examines how to maximize your financial situation while living abroad, including expat investments.
Setting goals is a good place to start.
Set Your Investment Goals
It’s critical to comprehend your financial objectives clearly. This refers to objectives that are medium-, long-, and even short-term.
The benefit of doing this is that it enables you to decide where to invest your money with greater knowledge.
Assume you are a British national who currently resides and works in Dubai, which has no income tax. You might want to invest your extra cash in regional investments using the extra disposable income.
However, you might eventually want to go back to the UK, perhaps to retire. Even though this is a long way off, it is still important to keep it in mind and make investments in line with it.
For instance, buying a property in the UK will not only give you a reliable source of income but also a place to live when you come back.
How To Invest While Living Abroad: 4 Investment Options
For individuals looking to invest in the UK, an Individual Savings Account (ISA) is a great option.
An ISA is not only simple and safe, but it is also tax-efficient.
ISAs are regrettably only accessible to UK citizens. Most expats, particularly those who have lived abroad for a long time, won’t be considered UK citizens.
What are your options, then, if you want to start? Here are some things for expats to think about.
1. Pensions
A pension plan, like an ISA, is a crucial part of your overall retirement planning strategy and a tax-efficient way to save.
Pension is a very broad concept. Although there are many products available, QROPS and SIPPs are the two that foreigners can really benefit from.
A pension wrapper is a Qualifying Recognized Overseas Pension Scheme (QROPS). You can transfer a UK pension using these HMRC-approved programs. More flexibility and financial advantages are provided by this.
Self-Invested Personal Pensions (SIPPs) are available for those who prefer a more active approach.
SIPPs give you the freedom to choose your own investments. In the end, you decide where to put your money.
It is suggested to get impartial advice from a professional regarding both options.
2. Real Estate
Investment in real estate has traditionally been thought of as a safe addition to any portfolio.
Currently booming and not showing any signs of slowing down is the UK real estate market.
The average price of a home in the UK is around $277,000, according to ONS data. The figures show an increase of £27,000 from the previous year.
Property investment has many advantages. If you rent it out, it can provide a steady stream of income. Furthermore, you will be the owner of a resource with the potential to appreciate in value over time.
If you choose not to sell, you will still have a place to live if you decide to go back to the UK.
Be aware that purchasing real estate is more difficult for expats. If this sounds like a possibility you’d like to investigate, check out our guide to mortgages for expats for more details.
3. Offshore Investment Bonds
A life insurance policy that serves as a tax wrapper is essentially what an offshore investment bond is. A variety of investment funds held outside of the UK may be included in the bond.
For expats, offshore bonds are a tax-effective option because they typically avoid deferred income tax and capital gains tax.
Even if you go back to the UK, the investment will continue to be tax-free as long as the proper bonds are in place.
4. Stocks and Shares
You buy and sell shares of a company when you invest in the stock market. Individual company shares can be purchased. There are other choices, though.
For instance, managed investment funds like mutual funds expose you to various assets and classes.
These funds can make it simple for you to put together a varied investment portfolio, allowing you to spread the risk and reduce it.
Your returns are frequently determined by the company’s performance. Your share’s value rises the better the company does.
Currency risk is one factor that expat investors should take into account. Exchange rates may have an effect on people who live abroad but have assets back home.
How to Invest While Living Abroad: 6 Helpful Tips
Here are six helpful tips for expats if they are wondering how to invest while living abroad.
1. Check to See If Your Expat Status Is Permanent
Before you start investing as an expat, one of the most important questions you should ask yourself is how long you plan to stay abroad.
Some people choose to make a new country their permanent home while others enjoy working abroad for a few years before returning. Others continue to favor a more nomadic way of life. Enjoying life as an expat can be done in any way!
However, knowing a ballpark duration of your stay as an expat can help you define your investment plan.
As an expat, managing currency risk should be your primary concern when making investments. Currency risk refers to the possibility of losing money on an investment as a result of unfavorable currency exchange rates.
Investing in the currency that you will eventually want to cash out is one way to manage currency risk in your portfolio.
Therefore, it may be wise to build a portfolio that includes bonds, stocks, and mutual funds based on the US Dollar rather than the Euro if you’re an American who plans to stay in Europe for a few years before retiring in the US.
2. Find an investment broker who specializes in serving expat clients
You might encounter difficulties when attempting to invest as an expat depending on your country of origin. Finding an investment broker who specializes in working with expats from your home country as opposed to just working with expats in general is a good idea for this reason.
This is crucial if you are an American expat living abroad because of the Foreign Account Tax Compliance Act (FACTA), which was passed in 2010 and makes investing very challenging for Americans.
The IRS is able to enforce US tax laws and regulations relating to foreign investment more strictly thanks to FACTA. As a result, many foreign investment firms are turning away American investors, and some US brokers won’t deal with people who reside outside of the country.
This is why doing your research is crucial. When looking for an investment broker, make sure to specifically inquire about whether they accept clients from your country.
It might be best to look for a US-based broker who has experience dealing with clients from other countries if you’re an American. Even if you plan to retire abroad, putting your money in an American company can help you navigate the maze of complex tax regulations.
3. Prepare for taxes by doing your research
If you have investments located abroad, you should find out if your home country has any laws or tax penalties.
For instance, many US citizens who live abroad frequently avoid the tax penalties imposed by FACTA by buying foreign stocks and bonds from US-based companies because, when those securities are “housed” in the US, they are subject to much lower taxes.
Research is important when it comes to taxes because it can result in significant financial savings.
Tax Implications
A complex topic is tax. Being an expat makes it even more challenging because there are numerous tax laws to take into account.
Depending on where in the world you are, there might be double taxation agreements in place.
To prevent double taxation on the same income, these agreements exist between nations. Not all nations and the UK have a double taxation agreement in place.
If one exists between the UK and your country of residence, you can check it on the government website for more details.
When it comes to taxes, it is strongly advised to seek professional financial advice if you are unsure. It might save you from receiving an unexpected tax bill in the future.
4. Create and keep a portfolio that is diversified globally
Any investor would do well to “think globally” when putting together a portfolio, and expats especially need to have a diversified portfolio that spans the globe.
It’s a good idea to find a broker or stock picking service that can assist you in creating a portfolio that is based on several different currencies if you are a digital nomad who is unsure of where in the world you want to cash out. Currency risk can be reduced with a globally diversified portfolio using different currencies.
5. Think about purchasing real estate
A property investment can be a valuable addition to your portfolio, despite how contrary it may seem to the expat way of life. While FACTA severely restricts American expats’ ability to invest in foreign stocks, property investments are not subject to the same tax penalties.
Observe the laws governing the purchase of real estate in your country of residence with caution. Numerous terrifying tales exist about foreigners losing their retirement savings in dubious land deals.
Working with a reputable real estate agent is important, ideally one who is a native of your home country but now resides abroad. You should also hire a lawyer who represents expats from your home country.
If you plan to move back to your home country, you might want to buy a home there and rent it out to make passive income. Purchasing a home does not require you to settle down.
Real estate is almost always a very good long-term investment strategy, but you will need to hire a competent property manager to maintain the rental while you are away.
6. Consider repatriation
Before selecting an investment strategy, give your long-term living plans a lot of thought. Your investment strategy will be very different from if you intend to retire abroad if you intend to work and live abroad for a few years before returning to the United States.
The management of currency risk is the main issue at hand. In essence, currency risk is the possibility of losing money on an investment because of the rate of currency exchange. The best course of action is to invest primarily in the currency that will ultimately be used to exchange the funds.
Consequently, if you want to retire in Europe, invest in stocks, bonds, and mutual funds that are based on the Euro. Buy stocks, bonds, and mutual funds denominated in US dollars if you intend to retire in the US.
Final Thoughts
Don’t just assume you can maintain your well-constructed investment portfolio as-is while residing as an expat if you’re getting ready to move abroad and have one.
Speak with your broker to confirm that the brokerage is expat-friendly and knowledgeable about the rules and laws pertaining to Americans living abroad.
The last thing you would want is a call or email informing you that your account is being closed down because you neglected to inform the brokerage of your new living situation.
Pained by financial indecision? Want to invest with Adam?
Adam is an internationally recognised author on financial matters, with over 760.2 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.
