5 scary financial mistakes and how expats can avoid them

It’s Halloween so, we thought we would stick with the theme and talk about some financially scary mistakes that can hit expats and how you can manage them.

1. Keeping all your money in cash

We wrote about this recently and you can read the full article here. It is important to hold an adequate cash reserve to cover emergencies and to act as a contingency should your circumstances change. Expats are more likely to find themselves in this situation, where you might need to make an international trip at short notice or even move countries. So, some cash in reserve is important.

Just as bad as having insufficient cash is having too much. While holding all your wealth in cash might feel safe, it can actually be a higher risk as you are almost certainly going to lose purchasing power to inflation and see your capital erode in real value over time. 

While all investments carry some risk, and the value can rise as well as fall, it can help you grow your wealth over the long term. If you’re saving for a goal that is more than five years away, it’s worth considering an appropriately diversified portfolio for you.

2. Trying to time the markets

One of the reasons some people hold cash is to try to time the markets. From our experience working with many clients over decades is that it does not work. If you decide to sit in cash and time entering a market when it falls in value, you might find yourself on the sidelines of investment markets for months or even years. During this time, the market can go up further than it will subsequently drop meaning you are worse off. The other way people try and time a market is to sell at a top. Again, almost impossible to time.

Instead, we recommend structuring your investments according to your timeframe and your objectives. Then with active management and good advice you can manage your portfolio across investment cycles for a more consistent performance.

3. Not getting your estate planning in order

How carefully have you considered what you’d like to happen to your assets when you pass away? It’s something that many people put off. It can be especially important as an expat when you have assets in multiple jurisdictions and potentially the laws of different countries to consider.

Without an estate plan in place, it can be difficult to understand what you’ll pass on to loved ones and these wishes may not be carried out without a will. An estate plan can also give you confidence. It can, for example, help you understand how you’d pay for care if you need support in the future.

4. Close the pension gap

One of the common impacts of international life is that expats often end up with pension gaps. These are those periods in your working life when you are not receiving pension contributions from your employer, and/or you are not making pension contributions for yourself. It is one of those issues that can fall into the ‘important but not urgent’ bucket, until you get close to retirement and find out you might not have as much accrued as you thought you should.

Like so many aspects of expat life, you need to consider pensions in different countries, with specific rules and restrictions and balance that with what you want.

Our advice is don’t put it off. Preparing for your retirement income needs can take many forms and the most important step is the first one: to get advice, and to plan ahead.

5. Understand the local laws and opportunities

If you are new to a country, take the time to get to know the laws, regulations, restrictions and obligations. This can include pensions, taxes, investment restrictions, reporting requirements and your rights as well. Do you qualify for allowances? It is worth getting tax advice when you are new to a country to get clarity on these issues and get financial and investment advice so you understand the investment horizon.

If you are new to a country, check out our Just Arrived guide here.

In addition to understanding the lay of the land in your new home, don’t forget home country obligations. Depending on where you are from, the nature of your tax and residency status, you may still have reporting and even tax-paying obligations in your country of citizenship, or other countries where you own assets. Our American clients are well aware of this, but it is not just US citizens and connected people that can be impacted. If you are not sure, speak with us or your local professional.

If any of these issues resonate with you, speak with us. You can contact us by email at info@blackswancapital.eu or via our website www.blackswancapital.eu.