Last month we saw that you don’t need to be a multimillionaire in order to benefit from sound financial planning. This month, during the festive season, we would like to share with you some of the best kept secrets in wealth management and financial planning for expats.
Expats Financial planning 101
One of the best kept secrets in the expat world of financial planning and wealth management is that the primary benefit of saving/investing is that the expat saver or investor is simply not spending. That’s it! There are many expats whose financial security and indeed all round health and quality of life, would improve enormously if they just locked cash in a safe and threw away the key or ‘kept it under their mattresses’. This is really the best free expat financial advice that anyone can give or get.
Expats Reality 101
Most expats that we meet do not keep their cash locked in a safe or under their mattresses but many of them do keep their paper currencies in virtual mattresses, called bank accounts. From an expat financial planning perspective, keeping your cash in the bank is certainly preferable to spending it but this strategy will almost certainly not meet your long term financial planning needs.
As mentioned in our August 2006 article (‘The colour of money’) on currencies, price levels in the US in 1900 were almost the same as they had been 200 years earlier. Imagine reaching retirement age as an expat today and not having to factor in unknown future ‘inflation’ to decide whether you could actually afford to stop working. Those were the days! Consumer prices in Thailand are currently rising at between 5% and 6% per year. This means that the savings of expats in Thailand need to grow by at least that amount just to stand still. If they do not, then the real value of expat savings falls and will buy less when you eventually take your cash out of the safe.
Expats Investing 101
It gets worse of course if you are an expat that happens to need to live off your cash. An expat retiring in Thailand today will typically require an income of at least USD 25,000 per year, to live in relative comfort. Remember too that those expats who are granted the privilege of living in Thailand on retirement visas must have at least USD 20,000 in the bank to qualify. If this person has life savings of USD 500,000, then they will require a return of 5% to meet their living expense needs. If savings are less, a greater return will be needed. This retired expat is now facing a target return of at least 10% just to survive. He or she needs 5% for living expenses and a further 5% just to make sure that the remaining savings keep up with ‘inflation’. Cash in the bank can’t deliver this for expats and neither can government bonds. Holding savings in cash and bonds is a strategy that provides one guarantee to expats; the erosion of purchasing power, year on year.
Expats Investment planning 101
To target returns that will provide income and protect the real value of expats’ savings means investing in asset classes that can and have consistently outperformed the relatively low returns of cash and bonds. These include equities, property and commodities. The exact personal financial planning portfolio mix of these assets, as well as cash and bonds will depend on your personal circumstances.
Expats offshore financial planning 101
Expatriates enjoy investment benefits that people in your home countries can only dream of. There is a far greater choice of investments available to you as an offshore expat investor. These offshore investments grow tax free. Your investment and financial planning arrangements can be set up in international financial centres that provide greater safeguards and security than even your home country.
By using the investment options offered by these financial institutions as part of your comprehensive financial planning, expats can benefit from huge discounts in the cost of saving and investing. The initial costs of up to 8% on fund purchase suffered by those in your home country can be completely avoided with expat financial planning that makes use of financial institutions located offshore. Expats can also enjoy huge reductions in dealing costs too. Financial planning that locates assets offshore also leaves you firmly in control of your savings and simplifies your financial planning affairs.
Expats Financial advice 101
Expats usually have far more disposable income and/or savings than those in our home countries. In the home countries of most expats, it is a legal requirement for financial advisers to be professionally qualified by examination. Outside the home countries of expats this is not always the case. For this reason always make sure that the person advising you is professionally exam qualified and thereby able to act in YOUR best interests.
Any investment made on the recommendation of a financial adviser should always be made directly to the chosen financial institution. This is for your protection.
You can be richest person in the world
Someone once said that the richest person in the world is the man or woman who has ‘more than enough’. Personalised and professional financial planning can certainly help expats to achieve their goals of living a happy and comfortable life with more than enough money for your needs.
Remember, it’s your money and your peace of mind.
Beginning in January, we will be bringing you a series of country specific articles.
It’s your money and your peace of mind.
Richard Colburn is a UK exam qualified financial adviser with Sterling Assets.
Questions to the author can be directed to 053 839 463 or email us