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:
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.
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:
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
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
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: