The Best Investment For Expats
What is the best investment for Expats? In fact, what is the Perfect Investment? Over the last few weeks, I have written about investing in cash, property and shares. This week I share a closely held investment secret…The Perfect Investment for Expats. I leant about this investment almost 30 years ago in my training as a financial planner but it is rare to hear about it today.
What Is The Perfect Investment?
The perfect investment has the following attributes:
- Capital guaranteed
- No minimum investment amount or term
- Best investment returns every year
- No entry or exit costs
- No on-going costs
I hear you say, “This sounds great! Where do I sign?”
Just before you part with your hard earned cash. There are a few things you should consider. First, the company is a commercial organisation, not a charity. If there are no charges, how does it pay its staff or suppliers? This money must come from somewhere.
Second, who is providing the capital guarantee? As attractive as a capital guarantee may sound, it is only really worth having if the company offering it is financially sound. Highly rated international banks are best, commercial organisations are probably to be avoided – especially if they are guaranteeing their own product.
Last, just how is the product producing the “best returns every year”? Commerce is competitive. If one company developed the perfect investment strategy which is guaranteed to generate the best investment returns possible year on year, everyone would want to invest in it. They would be deluged with money which they would not be able to invest fast enough or follow their successful strategies. In short, they would be victims of their own success.
Sadly, many expat investors looking for the perfect investment are caught out by scams every year. In short, as the saying goes, if it looks too good to be true, it probably is.
What Is The Best Investment?
Ok, so the perfect investment is probably not going to be available anytime soon. How about the best investment? The best investment should:
- Reward you fairly for the level of risk you are taking
- Match your time horizon
- Be well-diversified
- Have charges which are structured evenly throughout the life of the investment
- Have no exit penalties, enabling you to change whenever you want
You will know that there is no reward without risk. When taking higher risks, most investors expect greater returns. However, when taking risk it is important to balance both sides of the equation. These sides are your desire for higher returns and your ability to withstand financial losses and the impact they may have on your lifestyle.
The length of time you are planning to invest for is important. When investing in ‘real’ assets which are things like, real estate, shares, commodities etc then you should be investing for the medium to long term. This is usually 5 years plus. The reason for this is the risk of loss is lower the longer you invest. Additionally, the timing of your investment becomes less important the longer you are invested.
Diversification will help control risk. This may be across different asset types such as cash, bonds, property and shares or market and geographical diversification. Below is a table showing the relative performance of different asset types from 2010-2019.
For more information on why diversification is important see this page on my website.
Charges are important. All companies are in business to make a profit for their owners. However, there are many different charging structures. The best ones are those which you pay for services as you go. For example, low or no upfront costs and on-going fees based on the services you need. Always know what the costs for cancellation are before you start an investment.
Any product which charges you high fees to cancel should be avoided. This is simply because financial services is a dynamic and competitive sector. New products and services are being created all the time. Many of these are better than those previously available with lower charges. Therefore you should make sure you can take advantage of future improvements without paying high fees to your existing provider.
Summary Of The Best Investment
The perfect investment is a myth. If an investment looks too good to be true, it probably is. Investments should be chosen carefully and some of the key factors to consider are detailed within the best investment section of this post.