Why diversifying overseas investment is critical to success

ExpatRoute is here to help you understand why varying the assets in your investment portfolio can ensure you get the most from your money.

An expat investment portfolio can be an effective way for anyone living overseas to use their money to help fund their new life abroad.

But as an investor, how do you ensure your overseas investment portfolio works hard on your behalf to help maximise any returns? Well, diversifying an expat investment portfolio is often viewed as one way to enjoy surefire financial success. Spreading your money across a variety of investment vehicles can help reduce your exposure to risk, and mean you can make the most of the increased opportunities now available from living abroad.

At the same time, it’s always sensible to do your research into the numerous investments now available for expats living overseas. From property to stocks, there are an increasing number of ways to use your finances which can be confusing if not considered properly. Let’s take a closer look into how diversifying an investment portfolio works and, if planned effectively, helps you get more from your funds.

What diversifying an investment portfolio means

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Leaving the UK can provide expats with many new ways to invest their money previously inaccessible as a UK resident.

You will have the opportunity to invest internationally, potentially access a wider range of investments, and have the chance to reduce your tax bill through where you choose to put your money.

Diversification can be a great way of decreasing risk in your portfolio without having to pay for it. This is the practice of spreading any investments across different assets, meaning you’re reducing the risk of exposure to any decrease in one particular product or investment.

By dividing any assets, your portfolio’s total risk can be managed effectively without you needing to try and decrease the associated risks.

New opportunities from diversifying your investment portfolio

As a UK expat, you now have more opportunities to diversify your investment portfolio. Some opportunities, such as setting up an Individual Savings Account (ISA), are no longer available. If you had one in place before you left the UK, you should be able to retain this but it is unlikely you will be able to pay any more money into it. However, start to consider the many new opportunities now available to you, such as offshore investments, property, pensions or opportunities with international banks.

There are specialist funds that are often unavailable ‘onshore’, such as certain collective investment schemes and fixed-term deposits.

Here are some tips on how to diversify your investment portfolio to make it work for you.

Choose a wide range of assets

Utilising a range of different assets will help you reduce your risk by spreading your exposure to market volatility.

Often, the value of assets can move independently of each other and for unrelated reasons. For example, the value of bonds is linked to interest rates, and shares are connected with the financial performance of a company. Property values can fluctuate because of the performance of a country’s domestic economy. This shows how any value fluctuations are often unrelated.

If you can achieve a sensible spread of asset allocation, you may be able to protect yourself from downturns while giving yourself the best chance to enjoy a healthy return.

Consider investing internationally

Investors looking to add variety to their portfolios should consider international investments, particularly now they have access to new opportunities from living overseas.

Again, this is about reducing your exposure to risk by spreading investments across regions and countries. If there is a stock market crash or deteriorating economic conditions in one region, ensuring you’ve invested in a different place can be an effective way of pre-empting such volatility.

While different markets are not directly connected to each other, diversifying like this can also present extra investment risks you should be wary of.

Spread your investments across sectors

Alongside investing in different countries and assets, it’s also worth considering diversifying your money through different sectors.

For example, if you had shares in a bank back in 2008, their value would probably have fallen due to the impact of the credit crunch. In this way, it might make sense to diversify between sectors and industries. So, choose to invest in healthcare, construction or medical companies. If they are unrelated, it’s highly unlikely they will be susceptible to the same negative effects or market trends. 

Remember diversifying can involve extra fees

Investing as an expat sometimes does not come cheap and you should always do your research into the various fees diversifying your portfolio could incur.

For example, if you have your money invested in UK property, take into consideration any management fees you might have to pay when looking to maintain this residence.

An offshore investment bond is a financial vehicle some choose to place their money in. However, there are potential associated costs, such as a fee when the investment is made and an annual administration charge, too. If you work with an adviser, they may also charge a fee – this could be fixed or a percentage of the managed funds.

Ultimately, the more you pay in fees, the less you will have to invest in different assets. So, reducing this outgoing is a sensible approach.

Consider index funds

Investing in funds that track different indexes is a long-term diversification strategy. Adding fixed-income solutions means you are shoring up your investment portfolio against any unexpected market dips.

These funds often come with low fees and minimal operating costs. They work by looking to match the performance of broad indexes so, rather than investing in a specific sector, they try to reflect a bond market’s value.

These funds often come with low management fees and costs, which can mean more money for you to invest elsewhere.

Think about your financial aims

Everyone is different and has their own unique financial circumstances. There’s no one-size-fits-all approach to an investment portfolio. If not thoroughly researched, diversifying an investment portfolio can be detrimental to your financial health. Over-diversifying could mean you only have small amounts of money invested in each area or product, something which could potentially limit your ability to grow your funds. Expats are often advised to limit their investments to no more than 30.

Instead, look to do your own financial research and investigate your objectives. You need to consider:

  • Your tax status.
  • Future location plans.
  • Retirement aims.
  • Risk appetite.

This isn’t an exclusive list but contemplating all of these issues should help give you more idea about what you want from your money, and how hard you want it to work on your behalf. Good luck!

With so many investment options now available, choosing the best ways to invest your money and effectively prepare for the future can be a challenge.

ExpatRoute can help provide you with the necessary information to invest effectively across a range of different platforms. Contact a financial adviser today for more information.

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