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There is no easier place to invest than for US citizens living in the US. There are lots of great investing platforms, cheap diversified funds, well-regulated advisors and more blogs/videos/podcasts/articles than you could ever read. Every aspect of investing is so much easier than for expats.
Dalbar, which has been studying investor behaviour since 1984, finds that the average equity fund investor based in the US still massively underperforms the market.
Global index fund, annualised return: 8.0%
S&P 500 (US) index fund, annualised return: 6.0%
[You may spit out your coffee in surprise, but yes the world is quite capable of beating the US stock market over the long term!]
Average equity fund investor, annualised return: 4.25%
What’s going wrong?
Ouch. What is the average US investor doing wrong, despite having everything in their favour?
1) Trying to time the market, jumping in and out (clearly at the wrong times…)
2) Picking sectors and geographies based on greed, FOMO, personal bias or bad advice.
3) High fees from actively managed funds, too much trading etc.
What should you do instead?
If you follow the three guidelines below, you will do stupendously well over the long term:
1) Invest regularly every month or quarter like a machine, no distractions
2) Invest in a globally diversified index fund, no distractions (see a theme here?)
3) Keep fees low by selecting low-cost index funds and not trading too frequently
These, my friends, make up the secret sauce of investing.
Get started with my free guide:
3 Steps to Expat Financial Independence
15-minute read. Discover the simple process for taking control of your finances so you never have to stress about money again.
But for expats…
Forget the sauce, when it comes to expat investing it’s hard enough just trying to order the burger and fries. There is very limited and often conflicting information available to us on how to invest. There are commission-hungry financial advisors trying to push us down the wrong path. And there are few decent investing platforms that will even accept us.
So not only do we have to figure out how to invest as an expat, we then have to avoid all the pitfalls that screw up investors in other countries.
We need to:
– Find the right funds in the right currencies
– Avoid US taxes (40% of your portfolio anyone?)
– Find the right platform that will actually accept us
– Exchange and transfer our money without getting ripped off
– Then diversify properly, invest regularly and keep fees low
This is why I’m so passionate about teaching expats how to invest, because it is so hard to start, but so tax-free and transformative, and even simple, once you do get started. And of course when I say expats, I also include anyone that doesn’t live in the US/Canada/UK/Europe/Australia/New Zealand/South Africa.
Do you have any questions or comments? Share your thoughts in the Comments section below..
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2 thoughts on “Overcome the Frustrations Of Expat Investing”
Great reading your articles mate!
I do have a question about tax efficiency. Specifically the likes of the International investment “wrappers” that are available. As a New Zealand expat living and earning in the UAE, I’m currently investing in Ireland domiciled ETFs through Interactive brokers and maintaining regular deposits. All good so far.
Whenever I decide to begin withdrawing from this account I would be exposed to CGT and income tax of the country I am based and deemed to be a tax resident. Is it therefore better to continue as is or use a more expensive but tax efficient wrapper (and included trading platform) to offset the future tax costs? The International ‘Executive Redemption Bond’ is one that has been recommended to me (@1% fee for 10yrs, + $169 quarterly admin fee, + 1% management). Ultimately wondering of the future tax saving would offset the fees, or is the potential for growth in the current ETF route better? Are there other options to minimize future taxes?
It’s true you will be exposed to CGT and income tax when you return home. But in many countries you only pay tax on gains made from the day your return on home or for the UK you can sell and re-buy something similar just before you go home.
Offshore investment bonds are for 99% of people a terrible idea. The fees are far too high – think what % of your expected 7% long-term average annual profit they are eating up. The fees are much worse than tax, which can be mitigated by tax-free accounts, CGT/income tax annual allowances, adding to pensions/supers etc. So it’s best to really understand the NZ tax system when you start to think about moving home.
Many advisors love to push this tax angle because… there aren’t many angles left to push. The taxman definitely does not love these products and that should be warning enough!
You are doing really well – keep going while an expat.