5 Tips When Investing While Living Abroad
While many expats love to live “in the moment,” many have financial goals like buying a property and starting a retirement investment account. Because the laws around foreign investments are different in every country, it can be really confusing to even get started if you are trying to build an investment portfolio! If you are an expat looking to start investing while living abroad, here are five ways to invest your money as an expat.
1. Evaluate the Permanency of Your Expat Status
One of the biggest questions you want to ask yourself before you begin investing as an expat is exactly how long you intend to remain an expat. Many enjoy working outside the US for a few years and then return, some decide to adopt a new country as their home. Others still love a more nomadic lifestyle. There’s no wrong way to enjoy the expat experience!
That said, if you have a rough estimate of how long you intend to remain an expat, that can help define your investment strategy. The main element you want to consider when investing as an expat is managing currency risk. Currency risk is the hazard of losing money in an investment due to unfavorable currency exchange rates. One method of managing currency risk in your portfolio is to invest in the currency in which you eventually want to cash out. So if you’re an American who intends to stay for a few years in Europe and then retire in the US, it can be wise to build a portfolio that contains stocks, bonds, and mutual funds based on the US Dollar rather than the Euro.
2. Research an Investment Broker Who Specializes in Expat Clients
Depending on your country of origin, you might run into challenges when trying to invest as an expat. For this reason, you will want to find an investment broker who specializes not just in working with expats: but in working with expats from your home country.
If you are an expat from the USA, this is especially important because the Foreign Account Tax Compliance Act (FACTA) passed in 2010 has made investing very difficult for US citizens living overseas. FACTA allows the IRS to more strictly enforce US laws about taxation and reporting of foreign investment. Because of this, many foreign investment institutions are turning away American clients, and some US brokers refuse to work with citizens living abroad.
This is why it is important to do your research. When you are seeking an investment broker, ask specifically if they work with clients from your home country. If you’re an American, it might be best to find a US-based broker who specializes in working with overseas clients. Even if you intend to retire abroad, housing your funds in an American firm can streamline the quagmire of confusing tax laws.
3. Do Your Homework When It Comes To Taxes
You will want to research if there are any laws or tax penalties from your home country regarding investments housed overseas. For example, many expats from the US often skirt around FACTA’s tax penalties by purchasing foreign stocks and bonds through US-based firms, because when those foreign stocks and bonds are “housed” in the US they are subject to much lower taxes. Make sure to do your research when it comes to taxes, it can save a lot of money.
4. Build and Maintain a Globally Diverse Portfolio
“Think globally” might be good advice for any investor to follow when building their portfolio, and for expats a globally diversified portfolio is a must. If you are a digital nomad who is unsure where in the world you want to cash out, it’s good to find a broker or a stock picking service that can help you build a portfolio based on multiple currencies. A globally diversified portfolio based on multiple currencies can help to mitigate currency risk.
5. Consider a Property Investment
It may seem antithetical to the expat lifestyle: but a property investment can be a great asset in your portfolio. While FACTA makes it very difficult for American expats to invest in foreign stocks, the same tax penalties do not occur in property investment.
Do be cautious around your country of residence’s laws regarding property purchase. There are plenty of horror stories about expats losing their retirement funds in shady land deals. You will want to work with a reputable real estate agent, preferably one from your country of origin now living abroad. You will also want to enlist a lawyer who works with expat clients from your home country.
If you intend to return to your country of origin, you might want to invest in a property there and rent it out to generate passive income. Buying a house doesn’t mean you have to stay in one place. You will need to hire a good property manager to maintain the rental while you live overseas, but real estate is almost always a very good long term investment strategy.
There are many things to consider before you start investing your money while living abroad. If you have not left your home country, and you have a well-constructed stock portfolio, make sure to talk to your broker before you go overseas. Ask if your broker works with expats and is familiar with the laws of your next country of residence. The last thing you want is your account shut down because you did not inform your broker of your new location.
Living abroad can be a personally enriching experience, and with some shrewd investments, it can become an even better one!
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