Whether you’re an expat living and working abroad, or an expat in retirement looking to build an investment portfolio to fund your lifestyle, making safe investments can be challenging.
Unless you have been living in a new country as an expat for years, the chances are that you won’t understand the market well enough to make smart, low-risk investments, and on the other hand, investing in your native country might be too expensive or restrictive.
Below, we’ve put together a guide to investment when living abroad as an expat and share tips on how to invest your money, enjoying higher rates of return and lower levels of tax…
Before investing in your country of residence, you should consider your long-term plans and decide whether you’re going to return to your home country in a few years’ time. If you live in Dubai for work, for example, but hope to return to the United Kingdom in your retirement, you may want to consider investing in UK property or business to offer a reliable revenue stream when you eventually return. One of the key considerations, however, is managing currency risk, and weighing up exchange rates to maximise your investments. The Pound may be weak right now with the uncertainty of Brexit, but in ten years’ time, the market could be very different. Opening a bank account in the country you’re investing in could help in such cases.
Although investments in the UAE are not taxed, you should consider taxation in other nations if you’re planning to invest internationally. Interest and dividends from mutual funds, hedge funds, cash management products, and foreign pension plans may be taxed when you try to bring the money back to your country of residence, so offshore bank accounts can help to lower tax rates and reduce the chances of an unexpected bill.
Although investing with a bank won’t offer the same return on investment as going it on your own, many banks offer services designed for expats, giving them advice on how to properly manage their assets. The HBSC InvestDirect International Account, for example, allows you to access a financial advisor/wealth manager, who will run through the best options based on your circumstances. The minimum investment is £25,000/US$35,000/€25,000, and you’ll be assigned a wealth manager who can recommend investment portfolios based on the level of risk you’re comfortable with and handle the investments on your behalf. Remember that this is not risk-free, and the bank is not liable if they do not generate a return/lose your money.
Depending on your country of origin, you may be able to take advantage of risk-free savings and investment opportunities before you move to your new country. In the UK, for example, an ISA is one of the safest and most efficient investment options, but they’re only available to UK residents. If you’re UK based, you can contribute towards an ISA before you move. However, as you won’t be considered a UK resident when you leave, you won’t be able to add further contributions from overseas, but it’s an efficient option to consider before moving if you’re looking to keep a lump-sum in a savings account (a UK address will be required).
A private pension is a tax-efficient savings scheme that can play an important role in your wider investment portfolio. Spend time looking for the best pension plan for your budget and circumstances. As an expat originally from the UK, you may be able to take advantage of the Qualifying Recognised Overseas Pension Scheme, which allows non-residents to transfer their pension outside of the country, offering more flexibility to expatriates as well as currency benefits. However, overseas pension transfers have received negative press in recent years, so choose a trusted advisor and follow any guidance to the letter to ensure you’re compliant.
One of the most popular investment opportunities for expats in Dubai is stocks, allowing you to trade equity of companies operating in the country. Before jumping in head first, take the time to study and research the market and seek financial guidance to reduce your risk. The Dubai Financial Market is heavily regulated by the Securities and Commodities Authority (SCA) for added peace of mind, whilst NASDAQ Dubai allows expats to trade in Real Estate Investment Trusts, although neither are risk-free and should be entered into sensitively.
Another popular investment for expats in Dubai is Bonds, although as interest is considered to be haram in Islamic law, bonds are traded in Sukuk (Islamic financial certificates, similar to a bond distributed by Western financial institutions). Bonds can be purchased from AED 100 and in AED 100 multiples and redeemed at exchange houses after a holding period of 90 days. Consider the interest rate, offer period and maturity date before investing in Bonds, as whilst they may be low-risk investments for expats, they’re not the most rewarding.
Many banks in the UAE offer high-interest savings accounts with fixed deposits for between one and 24 months. E-savers are offered by banks such as ADCB Bank, Emirates NBD, HSBC, and Mashreq, and are low-risk investment opportunities, offering higher levels of interest than a typical bank account. In the UAE there are no taxes to pay on interest earned from your savings, but you should bear in mind that some banks penalise withdrawals and do not offer bank cards to discourage early withdrawals. Remember to always keep some assets free and easily available, should they be needed at the last minute in an emergency.
See also: Best bank in Dubai for expats
One final investment opportunity to consider if you’re an expat in the UAE is the property market, with the average three-bedroom home in the city commanding a monthly rental fee of AED 14,442 (around £2,950). However, high barriers to entry may prevent some expats from choosing to invest in property, with the average house price coming in at more than AED 2.78 million. Still, if you’re willing to make an investment, then you could expect to see an annual yield of 6.22% if you were to rent your property, even more so in prime locations.
However, a Cavendish Maxwell report shows that annual house prices in Dubai have softened by 5.6% in the past year, with the average apartment price standing at AED1.9 million, down from AED2.1 million three years ago. Keeping a close eye on the market, and investing in property before prices start to recover, will help you net the very best returns.
It’s possible to make sensible investments when living abroad as an expat, although your returns will only correspond to the level of risk you’re willing to take. Remember to consult with a financial advisor before you make a major investment decision, find investments with guarantees or reassurances, and always weigh up the opportunity costs before spending.
Don’t forget to check back to the Money Saving Expat blog every week for free and impartial financial advice for expats living in the UAE and around the world. Covering everything from borrowing and saving to taxes and mortgages, you can depend on us to help you make the most of your money as an expat and make better, more informed decisions every day.
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