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Living abroad puts unique demands on an individual's financial portfolio. Different tax jurisdictions, currency fluctuations and divergent inflation rates can dramatically impact both short- and long-term returns. By anticipating these complications, investors can better grow and protect their assets, allowing them to pursue their dreams both at home and abroad.
A financial portfolio heavily weighted in domestic securities and denominated in one's home currency may be appropriate for individuals who always live in their home country. But such a strategy can be costly for expats.
"The biggest mistake people make is failing to adequately research the financial realities of living in a foreign country for an extended stay," says Peggy Creveling, executive director at Creveling & Creveling Private Wealth Advisory.
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Among those realities is the risk associated with inflation. Moving from a developed economy to a rapidly growing emerging economy may not be as cheap as it first seems. "Rapid inflation and currency appreciation can erode the purchasing power of those living off investments and home country pensions, leaving them unable to fund the lifestyle they envisioned," says Chad Creveling, managing director at Creveling & Creveling Private Wealth Advisory.
A globally diversified portfolio with foreign investments can help to hedge against inflation. But both Crevelings advise clients to first identify their goals. "It's important that clients identify the amounts, time frames and currency for each of their goals and devise an appropriate investment strategy for each of their unique goals," Chad Creveling says.
Individuals who retire abroad should consider aligning a significant portion of their fixed income investments, such as bonds and certificates of deposit, with the currency of the destination country to hedge against currency risk. Expats who plan to permanently live abroad will have unique considerations that require different financial and foreign investment strategies than expats on temporary assignment.
To help make the most of living abroad, expats should also consider using a trusted online foreign exchange provider that offers tools like a free online currency converter to calculate dollar exchange rates and convenient bank-to-bank international payments via laptop, tablet or smartphone.
Bob Keats, founder and president of Phoenix-based KeatsConnelly, the largest cross-border wealth management firmin North America, specializes in helping Canadians and Americans living a cross-border lifestyle. Unfortunately, many of his clients come to him for help without realizing the need for critical advance cross-border planning after they've already married a foreigner, invested in property in another country or accepted a foreign job assignment.
"The ease of crossing the United States-Canada border gives people a false sense of security," he says. In addition to paying more in taxes, clients who didn't do advanced cross-border planning have involuntarily forfeited their state sponsored health care. Some have even lost their ability to move freely between countries because they are deemed to have violated residency rules. With planning, even health insurance, which many Canadians see as an obstacle to moving to the U.S., can be worked into the plan.
Unlike U.S. citizens, who must file income taxes no matter where they reside, Canadians can shelter some of their earnings abroad. By retiring in the U.S., high-income Canadians can reduce their income tax rate on pensions from 50 to 15 percent, recouping much of the rest in the form of a foreign tax credit.
When people plan ahead, the benefits of living abroad are numerous. By finding the right advisors, it's possible to make the most of an individual's hard earned savings.
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