This communication is for informational purposes only and is not intended to constitute, and should not be construed as investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, it is subject to change, and we are not responsible for any errors or omissions.
One of the benefits of being a UK expat is that you often intuitively grasp that there is a world “beyond Britain”. Opportunities in culture, food, relationships and travel exist outside our own shores. Yet does the same hold true for investing? Should you invest mainly in the UK as a British expat, or overseas?
Below, our team at Scottsdale explains why a global view of investing is not only necessary but desirable. We include thoughts on how to get started with building such a portfolio and some common pitfalls to look out for.
We hope this content is helpful. If you want to discuss your financial plan with us, please get in touch to arrange a no-obligation financial consultation, at our expense:
+34 966 460 407
info@scottsdale.eu
Home bias vs. global investing
As a British person living abroad, such as in Spain, there can be a strong allure to investing solely/mainly in the UK. Or, perhaps expats who are more settled in their host country might want to invest there – e.g. buying a property in Alicante or another Spanish city.
There is nothing wrong with this preference. However, left unchecked it can leave investors vulnerable to “home bias” in their strategy. This refers to a tendency to invest primarily in domestic assets rather than spread out investments across many international markets.
Home bias presents at least two main risks. The first is that you may miss out on investment opportunities outside of your comfort zone.
For example, the US public market has a much larger technology sector compared to the UK (20% of the S&P 500 stock market index). If you want to diversify into technology, you will likely find yourself restricted if you just focus on the UK.
Secondly, it can bring an in-build “concentration risk”. For instance, if there is a market crash in the UK, then your portfolio would likely be more damaged compared to a portfolio which holds investments across the world.
The necessity of global investing
It is, in fact, very difficult for British investors to avoid international investing. In today’s world, national economies are highly interconnected. Companies based in one specific country may have customers all over the world.
The FTSE 100 companies in the UK, for instance, derive 75% of their revenues from overseas. By contrast, the US-based S&P 500 gets 29% of its revenues from foreign markets.
Since it is challenging for a British investor to shield him/herself from the global economy, why not have a direct stake in it? Indeed, many parts of the world are growing – seeing a rising middle class and more listed companies. Such opportunities are worth investigating.
How do I invest globally as a UK expat?
A common barrier to global investing is a lack of investor confidence. It can be difficult enough for a beginner to know how to start investing in the UK – let alone in the rest of the world.
The key to getting started is giving yourself more financial education. You do not need to become a professional fund manager or day trader to do this. You just need a good grasp of the basics. From there, seek financial advice to start the portfolio-building process.
A good first step is to consider your investment goals. What do you want to achieve, exactly? For instance, do you want to build a retirement fund over the next 20-30 years? Or, are you looking to draw an income from your investments?
Another consideration is your attitude to investment risk and volatility. How much risk are you prepared to take and how much market fluctuation are you comfortable with? It is crucial to be honest with yourself. A financial adviser can help you ascertain your “investor profile” more accurately – helping you to avoid emotional decision-making with your investments later.
Your goals, investor profile and investment time horizon will be important in determining your “asset allocation” – i.e. what portion of your money is invested into different asset types such as equities, bonds or property. Again, a financial adviser can help to guide you here.
At this stage, you can start to consider global investing. For instance, how much of the “equity portion” in your portfolio will go towards UK markets and how much will be invested in other countries/regions (e.g. the US, Japan, Western Europe etc.)?
A financial adviser can help you decide on this important question – as well as assist with the tax implications of investing globally (e.g. dividends paid out by US companies to non-US citizens may be taxed). This professional can also help you analyse different fund options, keep investment fees down and navigate the (often hidden) effects of currency exchange on your portfolio as a global investor.
Invitation
If you are interested in discussing your own financial plan or inheritance tax strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:
+34 966 460 407
info@scottsdale.eu