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Update March, 2015


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Update by Natrakorn Paewsoongnern
 
 
 
FINANCE AND INVESTMENT   By Don Freeman
 

How Expats Loose Money

Financial problems or losses are often the major reason why expats are forced to return home or worst – end up stuck somewhere they no longer want to be. If you don’t want to end up in the same position as many failed expats, keep in mind the following ways expats loose money abroad:

Offshore Investment Products. Investing in complex offshore investment products requires even more due diligence on your part than investing in “normal” investment products in your home country as additional due diligence may reveal extra risks. For example: High interest rates are usually paid to compensate for risk, either because of what the product itself is invested in or because it’s based in a jurisdiction with less financial regulation and oversight. Finally and if you have trouble understanding even basic investment products like exchange traded funds (ETFs), don’t even think about investing in complex offshore investment products.

Foreign Exchange Rates. Currency fluctuations and FX transaction fees are a fact of life for expats and you will probably find there are times when your income and living expenses in multiple currencies are moving in the wrong direction from each other. And while currency fluctuations and transaction fees can be managed or the risks minimized (e.g. maintaining accounts in multiple currencies so you are forced to draw on one for money at an inopportune time), be cautious trying to speculate or profit from currency movements as you will probably end up getting in or out at the wrong time. Likewise, you should also be extra cautious of investment products that force you to lock up your money in one currency for a long period of time or don’t offer you much flexibility to get in or out quickly should the need arise.

Budgets. The need to live by strict budgets becomes imperative when living abroad as an expat as you will need to deal with currency fluctuations and likely much higher rates of inflation – meaning you will need to track exchange rates and prices. Failing to properly budget can easily mean you will end up spending significantly more than you need to be spending.

Repatriating Money. If you are working abroad or have managed to earn a big capital gain not in your home country’s currency, you may have trouble repatriating your wealth out of your adopted country and back home or into your home country’s currency. Many countries have or could institute strict capital controls (especially in times of crisis) while a negative currency movement could easily wipe out your capital gain or savings. And don’t forget transaction fees or any exit taxes that you could be liable for.

Property. Buying or speculating on property might be commonplace in your home country, but buying property in a foreign country is a minefield as the rules and regulations are inevitably much more complex and titles are often not clean. In the worst case scenarios, you won’t be able to sell the property or you may find yourself paying heavy taxes to multiple jurisdictions on any capital gain or you might have your losses disallowed for tax purposes.

Taxes. Depending upon your citizenship, you may have tax liabilities in both your home country and in any other country where you live or perform work. And if you are American and thus subject to worldwide taxation and disclosure requirements for foreign financial accounts, you will probably need to hire an accountant who specializes in expatriate tax preparation to avoid increasingly heavy fines and penalties for non-compliance.

Financial Advisors. As an expat, you will need to seek financial advice ideally from a financial advisor who is independent and regulated. And remember, while referrals are always a good to find competent professional advisors; they aren’t effective if the person making the referral failed to do his or her due diligence on the person first.
Don Freeman,BSME is president of Freeman Capital Management, a Registered Investment Advisor with the US Securities Exchange Commission (SEC), based in Phuket. He has over 15 years experience working with expatriates, specializing in portfolio management, US tax preparation, financial planning and UK pension transfers. Don can be reached at 089-970-5795 or email: [email protected]


Are You Making These Unrealistic Retirement Assumptions?

The first step when making a retirement plan is to have realistic assumptions about your retirement. Unfortunately, I have found that many of my clients, regardless of whether or not they are expatriates, are still working or are already retired, have at least one or more of the following unrealistic retirement assumptions:

       I will retire some place cheaper. Retiring to an emerging market may seem affordable right now, but such countries may not remain affordable in the future. After all, inflation is usually much higher in emerging markets than developed countries and then you will have to contend with fluctuating exchange rates which may make your intended destination more expensive. Finally, retiring some place cheaper may depend upon selling the home you live in right now and getting what you paid for it back - something many Americans will be unable to do.

       My living expenses will go down in retirement. You can't automatically assume your living expenses will go down in retirement - especially if you retire abroad and/or intend to have an active retirement (e.g. recreational travel, trips to see family, an active social life, regular visits to the golf course etc.). Moreover, you may have to deal with unexpected expenses such as high health care costs or the need to provide so-called "economic outpatient care" for adult children or grandchildren who are struggling financially.

       My taxes will go down. You may think your taxes will go down when you stop working or retire abroad. However, politicians in western countries are increasingly hard pressed to pay for spending with offshore expatriates and retirement plans you thought were tax free or tax deferred being potentially good targets for so-called "tax reforms" that inevitably raise your taxes.

       I can rely on my spouse/family/children for support. Don't assume your family will be in any position to help you financially or provide you with other types of support. For example: You and/or your spouse could suffer a stroke or otherwise become disabled and require expensive round the clock nursing care from a professional care giver for a long period of time.

       I can rely on my defined pension plan. If you still receive or will receive a payment from an old-fashion defined pension every month, congratulations for being lucky as most private sector employers have long since ditched such plans because they are to expensive to maintain. And if your defined pension plan comes from working for a government, its probably underfunded and may not be completely safe given what happened in Greece and what is starting to happen with the various municipal bankruptcies in the United States. 

       I can assume a high rate of return on my investments. With interest rates near record lows in many countries, you will need to be very realistic about investment returns. In fact, John Bogle, the founder of Vanguard, the world’s largest mutual fund company, told filmmakers of a documentary called the Retirement Gamble that the American retirement system is headed for a train wreck because too many defined retirement plans assume an unrealistic 8% per year return when a conservative 5% annual return is more realistic. 

       I can retire when I choose to. You may intend to retire at age 65, but your employer may decide to lay you off at age 62 or worst, go completely out of business. Likewise, you could suffer a debilitating injury or something that prevents you from working (and saving) until the age you intend to retire. 

       I can work to supplement my retirement income. Retiring overseas to an emerging market like Thailand will probably eliminate any opportunity to supplement your income with paid work. Moreover and even if you have the opportunity to work, you may not be physically or mentally capable of doing so.

       I won't live to a very old age. Don't assume that just because various family members did not live until a certain age that you won't live well past that age. In fact, health care advances mean that living past the age of 80, 90 or even 100 will increasingly become common place - meaning your retirement investments and income will need to last just as long.

Don Freeman,BSME is president of Freeman Capital Management, a Registered Investment Advisor with the US Securities Exchange Commission (SEC), based in Phuket.  He has over 15 years experience working with expatriates, specializing in portfolio management, US tax preparation, financial planning and UK pension transfers.  Don can be reached at  089-970-5795 or email: [email protected]


Why Rebalancing Your Investment Portfolio Makes Sense

Portfolio rebalancing is one of the trickier aspects of investment management as you will inevitably need to make some hard and counter intuitive decisions to ensure that your portfolio’s asset allocation continues to meet your investment goals and risk tolerance level. But why, how and when should you rebalance your investment portfolio?

Why You Need to Take Winners and Losers Off the Table

Selling investments that have been big winners in the past in order to reinvest the proceeds in investments that have not performed as well (e.g. selling equities for bonds) will take a considerable amount of mental discipline on your part. After all, the “buy low, sell high” investment strategy works, but only if you have the emotional discipline to sell at the high point and not wait for the investment to go even higher.

Moreover, stock market plunges always provide a good reason why you need to periodically rebalance your portfolio because too many investors, especially retirees or near retirees, entered the dot.com bust in year 2000 too heavily concentrated in tech stocks thanks to their run-up in value while others entered the financial crisis with more than 90% of their portfolios concentrated in equities. These investors presumably failed to periodically rebalance their portfolios which led to their asset allocations getting completely out of whack and ultimately to big and unnecessary losses.

Likewise, you need to periodically cut your losses on loosing investments. For example: It may seem like you have nothing more to loose on an investment that’s down 50% as it “could always go back up,” but you need to remember that an investment down 50% will need to rise 100% in order for you to at least break even again.

It’s also important to remember that not only is the market and your portfolio changing over time as asset classes or sectors move in and out of favor, so are your investment goals and risk tolerance levels in relation to the performance of the market and your portfolio. This means that even if your portfolio’s asset allocation has managed to remain static, you may still need to rebalance your portfolio to ensure it continues to meet your changing risk profile and investment goals.

Key Rebalancing Considerations

Although portfolio rebalancing is critical for maintaining your investment strategy and for helping you to avoid unnecessary risk, it’s not something you should follow slavishly (e.g. you don’t need to rebalance a 60%/40% equity/bond portfolio when the equity portion suddenly becomes 60.5%) nor should you just automatically rebalance your portfolio’s assets on a set date every year.

Instead, talk to your financial advisor about setting some basic thresholds. For example: If your asset allocation shifts 5% or more or some of your investments have made significant moves, then it might be time to set up a meeting to figure out how to rebalance things. In fact, you may need to rebalance your portfolio a couple of times a year in a very active market or you may not need to rebalance it at all.

There may also be times where you need to rebalance your portfolio in order to take advantage of so-called “tactical” opportunities which periodically present themselves. For example: Allocating a portion of your portfolio to beaten down homebuilder stocks, which started bouncing back in mid-to-late 2011, would have been a good tactical investment at the time while now might be the time to take some or all of your profits off the table.

Finally and before you over-rebalance your portfolio, remember that too much selling out of high performing assets in a bull market or too much buying and selling in general that racks up commissions or fees, can negatively impact your long-term investment returns. In other words, rebalancing an investment portfolio is more of a balancing act and an art form rather than an exact science.

If you have not rebalanced your investment portfolio in some time, call me and we can discuss how to do so.

Don Freeman is president of Freeman Capital Management, a Registered Investment Advisor with the US Securities Exchange Commission (SEC), based in Phuket, Thailand. He has over 15 years experience and provides personal financial planning and wealth management to expatriates. Specializing in UK and US pension transfers. Call 089-970-5795 or email: [email protected]



 
HEADLINES [click on headline to view story]

Update March 25, 2015

How Expats Loose Money

Update March 20, 2015

Are You Making These Unrealistic Retirement Assumptions?

Update March 1, 2015

Why Rebalancing Your Investment Portfolio Makes Sense


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