The Unbiased Guide to Offshore Investing for Expats

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dollar boat expat guide investing offshore stock bond etf

If this looks complicated, don’t worry – once it’s set up, it is actually quite quick and painless. No techie skills required. Don’t let someone take a lifetime of fees from you – believe in yourself enough to fill in a few forms and learn some new concepts.

Investing as an expat is mysterious. It’s not easy to find out how to do it. Everyone is either clueless or trying to sell you some terrible investment plan that isn’t even legal in your home country.

Figuring out expat self-investing is absolutely worth it though. Let’s say you invest $2,000 monthly for 30 years. If you make an 8% average annual return from your sensible stock portfolio, then pay 1% per year for all investing costs, you’ll end up with $1,227,000. More than a million dollars – nice!

Paying just 1% extra in costs will lose you $218,000 of that (and most plans will charge you a lot more). If you want to make the most of being an expat, you must keep those investing fees as low as possible.

No financial company wants you to know this

Even when you hear about low-cost options like Vanguard or learn what an ETF is (see below), you can still hit a brick wall. Contact Vanguard and they will say nope, we only deal with residents. Anti-Money Laundering regulations making servicing expats a hassle.

I first learned about Vanguard in 2011. I sold alllll the random actively-managed funds in my old UK ISAs (tax-free savings accounts) and replaced them with just one fund – the Vanguard LifeStrategy 80/20 fund. I can’t stress enough how wonderful the LifeStrategy funds are for UK residents – literally all you need.

But, living in Dubai, nobody could tell me how to invest with Vanguard as an expat. I dug around, then life moved on and I accepted it wasn’t possible.  Only in 2016 did I come across an article explaining how to do it, and I immediately realised what a huge find this was. Unexpectedly, I got a bit emotional, because I knew then I could finally help people invest cheaply and sensibly. Here was my mission.

So here we go – I’m going to give you the keys to the expat investing kingdom. Where you live, no financial company wants you to know how to invest offshore cheaply, because they won’t make any significant money out of it.

This is how to invest in stocks and bonds as an expat, exactly how I do it myself. I’m going to use the UAE as an example, but the principles should work for most expats regardless of location and country of origin.

I’m also going to show you the exact companies I use to transfer my money and invest. I don’t make any commission from recommending these companies – I’m mentioning them because they get the job done.

Setting Up the Chain

There are five links in the expat investing chain – it’s easiest to work backwards:

1. Exchange-Traded Funds (ETFs)

Offshore Investing chain bank exchange brokerage fund manager ETF

Like most expats, you probably want to invest in a mix of stock and bond Exchange-Traded Funds (ETFs). Mutual funds (such as Vanguard LifeStrategy) popular with those back home aren’t easily available to expats, so we have to use ETFs. In fact, ETFs are so awesome they could stand for Expat Total Freedom. They are similar to mutual funds, but are traded more like an individual stock. This makes them easy to buy and sell.

Let’s say you want to invest in one stock ETF and one bond ETF, to keep things simple (which you should do). You settle on 80% in VWRD (the Vanguard FTSE All-World UCITS ETF in USD) and 20% in IGLO (the iShares Global Government Bond UCITS ETF in USD). Congratulate yourself for your incredibly smart fund choices, as these funds are cheap and well-diversified.

Unless you are a US citizen, you don’t want to invest in US-domiciled ETFs, i.e. those based in the US. These may be liable for estate tax if you die (up to 40% on amounts over $60,000) and a 30% withholding tax on dividends. Stick to ETFs domiciled in Europe (with ‘UCITS’ in their name) and you will be ok.

JustETF.com and Morningstar.com are great places to learn more about each ETF, including where they are domiciled, fees and what they invest in.

Find out more about VWRD here. Find out more about IGLO here. There are further thoughts on asset allocation and ETFs here or you can enquire here.

2. Fund Managers

Offshore Investing chain bank exchange brokerage fund manager ETF

Vanguard and iShares are highly-respected fund managers, managing literally trillions of dollars. Vanguard is especially awesome, as all profits go towards reducing your management fees (helping you grow your investments faster). It was founded by all-round hero Jack Bogle, who invented passive index funds.

Fund managers create mutual funds and ETFs, packaging together hundreds or even thousands of shares to create a fund with a single price. Without them, you’d have to buy all the shares in an index individually and you probably wouldn’t bother.

You can’t buy VWRD and IGLO direct from Vanguard and iShares as an expat, just as you don’t go direct to Chiquita to buy bananas. You access them via a broker, which is like a supermarket for funds.

Find out more about Vanguard here.

3. Offshore Brokerages

Offshore Investing chain bank exchange brokerage fund manager ETF

Most brokers in your home country won’t allow you to open an account with them if you aren’t a resident there. You need to find an offshore broker instead.

You send the broker money and tell them which ETFs you want to invest in. They will quote you a price, buy the shares and hold them for you. When you want to sell, they quote you a price, you click ‘Sell’ and should have the money within 3 days for transfer to your bank.

Most brokers have a website and a mobile app that allows you to easily track your investment performance, receive dividends, buy or sell ETFs and transfer money in or out.

Brokers are required by law to keep your money and investments separate from their own money, so your assets are protected if they go bust. If they have committed fraud and used clients’ money, then you are further protected (e.g. clients of US brokers are covered by the SIPC for up to $500,000 of stocks and bonds, and $250,000 of cash).

I use Interactive Brokers (IB), which is based in the US and is large, robust and cheap. They have a good mobile phone app for investing and tracking your portfolio. You won’t be liable for US estate tax as long as you don’t invest in US-domiciled ETFs and don’t have more than $60,000 sitting uninvested in your IB account.

Setting up an IB account requires you to fill in a few online forms and send them proof of identity online. You want an individual cash account (‘cash’ here means you will invest with your own money and not borrow money to invest). After that the setup is fairly quick. If you work for a Financial Services company, you may need to get a permission letter from them due to share trading restrictions.

To add money to your IB account (no minimum though account fees are cheaper once your account is above $2,000), you click on Transfer Funds (then Wire transfer) under Account Management. Enter an amount you want to transfer and IB gives you a code for the transaction.

Find out more about Interactive Brokers here.

4. Exchange Houses

Offshore Investing chain bank exchange brokerage fund manager ETF

You need to send money to your broker and probably need to change the currency as well. Brokers typically charge high rates for foreign exchange (FX) conversions, so it’s better to do it before it reaches your broker account.

You can use your bank to convert the money into the right currency and send it to the broker, but often their fees are high and exchange rates not very favourable.

Instead, you can use an online company like TransferWise.com or CurrencyFair.com. However, your broker may not like it if the money arrives from that company’s bank account rather than from your account. This can give them Anti-Money Laundering headaches, especially when you first open your account. Check with your broker or look for guidelines saying transfers must come from an account in your name.

As an alternative, exchange houses can offer good rates and help you through the transfer process, if they are familiar with sending money to your broker.

I use UAE Exchange in Dubai, who offer good rates and low charges for their Club Exclusive customers. They also know how to get money into your Interactive Brokers account efficiently and in your name.

When I want to make a transfer, I send them the transfer amount and transaction code I received from Interactive Brokers, then they let me know how much in local currency I need to transfer to them. This amount includes their exchange rate and transfer fee. I send them the money in AED from my local bank account and they pass it on to Interactive Brokers in USD within 24-48 hours.

Find out more about UAE Exchange here. To become a Club Exclusive member, which is free, send a message through our Contact page and request the details of the relationship manager.

5. Local Banks

Offshore Investing chain bank exchange brokerage fund manager ETF

Sending money to your broker is usually much cheaper via an intermediary (such as an exchange house or online transfer company) than direct from your bank, especially if a change of currency is involved. So if you are using an intermediary, you only need your local bank for transferring the local currency from your account to the exchange house’s local account.

Some banks offer free local transfers, which will reduce your costs even further.

Summary

This process may sound complicated but, once you have the accounts set up and have transferred money a couple of times, it becomes fairly straightforward. You should be aiming to invest monthly or at least quarterly – making a transfer shouldn’t take more than 15 minutes out of your day.

Now that you know how to become an offshore investor, just get started! You can practice with small amounts to build up your confidence. Don’t leave it 6 months or more before dipping your toe in!

Not enough expats know how to invest offshore without getting ripped off and this information is really hard to find anywhere. Please share this article with any expats you know!

Have you found any savvy tricks for investing offshore cheaply, quickly and sensibly? Or have you had problems trying to do this? Share your thoughts in the Comments section below…

 

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27 thoughts on “The Unbiased Guide to Offshore Investing for Expats”

  1. Good read. I wish to purchase berkshire hathaway class b stocks for long term investment $200k (20years). Doing the above method through interactive brokers, the shares would be in the street name. It is not recommended for the said amount as the spic protection is only upto $500k. Compounding my initial investment will definitely cross the $500k mark in a couple of years.
    My question to you is, is it possible for a foreigner (non us citizen)(I’m in Indian citizen, Dubai resident) to hold the stock in direct registration system (Drs) format. If yes, how do I go about it? Do I need to register at the sec? As brk shares do not pay dividends. Im assuming I will be liable only for capital gains tax at the time of sale. Your views appreciated. Thanks. AJ

    1. Not sure why you would want to invest such a large amount in one stock, I prefer diversifying across more than one index. It will take a while for $200k to become $500k, by which time consumer protection rules and amounts may have changed. I would wait until your investments get closer to the $500k mark and then investigate your options.

  2. I have been looking for information about specifics on investing as an expat. Your blog is by far the best source I found. Please, keep the good work!

  3. Hi,
    this rule that we as expats non-US citizen should not invest on EFTs domiciled in US to avoid taxation is also valid for normal stocks traded in US?
    Thank you for the comprehensive guide.

    1. Yes that seems to be right for US stocks purchased in the US – you would be liable for estate tax. Please do your own research on this though if you have a large exposure to such stocks.

  4. Wonderful advice! This concurs with what I’ve been reading about estate taxes in the US, though I do get conflicting stories if you use a US broker even though the ETFs are Irish domiciled.

    Does Interactive Brokets charge custodian fees?

    We are waiting for the book! Perhaps more info in the future about the pros and cons of various international brokerages and safety of custodian arrangements

    1. Hi John, yes some people are wary of US brokers but from what I have researched the domicile of the fund determines the tax status rather than the broker location. IB does not charge separate custody fees. I think IB are safe though if you wanted to be more cautious you could divide your investment across two or more brokerages. IB offers a stock lending program to make a bit more money but that could go a bit pear-shaped in a big crunch, so you could avoid that feature.

  5. Thank you for the great guide. I was looking for such guide to start my ETFs investing journey. The question I have How easy to take money out from my Portfolio in IB ? I am a non US expat I hold a Jordanina Passport

    1. Hi Mahmoud. Glad it’s been helpful for you! It should be as easy as putting money in… You arrange for the ETFs to be sold through your IB mobile app and then transfer the funds back to your bank account. Might be good to set up a USD bank account in your home country, so you have more control over exchange rates.

  6. Great information thank you SS. I found your blog via Millennial Revolution. I am currently in China and sending money back home to invest through my brokerage thats in my home country. It works, but I would like something more international also. Maybe we can work together on a post for expats from China to get money out to invest. China is a different beast for getting money out of.

    Cheers,
    Colby @ That Charles Life

    1. Hi Colby, I hope life is good in China. Yes I would be interested to hear how you get money out of China and into USD/CAD. Once it’s out, I imagine everything is fairly straightforward again.

  7. As a Dubai expat. This is literally the gold mine I was looking for. I am concerned about the currency rates though. Do you have any particular positive experience with any particular bank?

  8. Great article.
    Do you also use an exchange house when transferring the funds from your brokerage account to your bank account?

    1. Thanks Keni. You should set up a local bank account in the same currency as your IB account. You can then send money directly from IB to that account. When/if you want to use the money locally, you can use a local exchange house to convert the money into local currency (likely to be cheaper than your bank, even after transfer fees but do check this first).

  9. Is it necessary to buy the funds in dollars, or is it possible to buy the funds in pounds (British expat) through interactive brokers ? Also how would you rate the IB platform for ease of use , it appears complex.

    1. You can buy the funds in pounds e.g. VWRL instead of VWRD through Interactive Brokers, especially if you set up your account as a GBP account in the first place. If you are earning in AED or USD though, I would recommend investing in USD unless you are moving back to the UK in a year or two. For stocks it doesn’t matter which currency you invest in, as the currency sensitivity is driven by the income of the underlying companies rather than the currency the ETF is priced in.

      I use the IB mobile app – it is much easier to use than the desktop version, which I would avoid. I use the Order Wheel on the app to make trades.

  10. Thanks for the feedback. Does IB charge custodial fees? If so can you outline the rates and any other issues for a buy and hold investor?

    Also do they need a tax file number when applying?

    Thanks in advance

    1. They charge a platform fee of $120 but that absorbs any trading commission up to $120 per year. They don’t charge custody fees. You will need to provide a tax number if you are resident in a country which has issued you a tax number or you are a US citizen.

  11. Smart S.
    This info is gold. I am a F.I.R.E fan and Chautaqua participant and cannot thank you enough for the info.
    I have been struggling with the investments and even made the mistake of opening an account with one of the friendly UAE brokers through an online broker and will be locked there for years….
    The good thing is that I have selected my own funds to a 60% Stocks -40% bonds with the lowest fee and will revisit in a few years
    As MMM follower , I have been trying to join Vanguard Spain, with no success( I am Spanish) and doing most of my FI investments through Reals State, so now a new era starts.
    I would love to catch up with you one day in Dubai.
    Cheers

    1. Hi Gonzalo

      Unfortunately you will probably still be better off getting out of the savings plan now, taking the hit and then reinvesting your money yourself. Otherwise the high fees will destroy your potential gains. If you are earning in AED, you might as well invest in USD via Interactive Brokers for now – the global stock market is mostly $-denominated anyway. Yes let’s swap Chautauqua stories! Steve

  12. Thanks Steve, I was chewing over the different ETFs and decided to go with the ones you suggested as they were in USD. Now I can forget about it for a while! Thanks for all your advice, really all your help.

  13. Dear All

    Is there a consensus about the ‘best’ ex-pat international broker. I’ve looked into IB , Saxo, Internaxx etc

    My main concern is security of title of my share portfolio. I realise in many of these accounts I’m the beneficial owner but I read that under these omnibus accounts the broker is the ‘owner’

    Little is written about the safety of various custodial arrangements

    1. You are protected with IB by the SIPC up to $500k in stocks/bonds. That’s good enough for me. Saxo charges extra for custody if that gives you additional comfort. No harm in splitting your portfolio across multiple brokers. I like IB because they are large and cheap, easy to open an account with and don’t block inward payments for no reason. I don’t include DEGIRO in my recommended list because of various whisperings of corner-cutting and not being straightforward. Such remours may well be unsubstantiated but why bother when there are decent alternatives.

  14. Thanks. I’m eagerly awaiting your book in which you ‘flesh out’ all your thoughts on this niche area of investing

    Thanks again

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