What specific investment mistakes do American expats usually make?
Vince Truong, a certified financial planner based in Dubai, helps American expats around the world grow their wealth. He guides his clients by aiding them in determining what they need to do today in order to secure their ideal tomorrow.
For Vince, the five common mistakes that most American expats make are:
1) Not making sure that the companies they work with are American expat-friendly
Americans who are planning to go overseas but are still in the US need to be moving their investments into expat-friendly platforms.
Nowadays, most financial accounts require two-factor authentication for users to be able to log in. Oftentimes, this is done through a mobile phone. Given that some companies do not allow non-US phone numbers, this may cause trouble for the expats when logging into their accounts. They have to make sure that they are working with companies that will accommodate Americans all over the world. Though some companies allow expatriates to keep their existing accounts, some would not create new accounts for them.
Vince emphasizes that before leaving America, people should consider moving their accounts to companies that are quite global and friendly toward American expats (e.g., Charles Schwab, Interactive Brokers).
2) Not setting their target retirement age ahead of time
Some Americans planning to work overseas for only a short period of time often end up staying there longer than they have originally intended to. By being away from America for so long, most of them usually feel like they do not belong to their home country anymore. Because of this, they consider retiring abroad, and not in America. Yet, expats usually do not plan their retirement earlier than they should, and they do not take note of how much they should be setting aside each month to be able to fund their retirement wherever they are residing.
It is true that most people really do not thoroughly think about their retirement, and that this causes them certain problems, especially because time then becomes their enemy as they move closer to their retirement age.
Without enough time, a lot of problems may arise. For them to prevent such, they should set their target age for retirement, and do what they need to do at present in order to meet their future objectives. They must always keep themselves reminded of their target retirement age and the amount of money they need to set aside before spending on anything.
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3) Not negotiating their employment contract for the maximization of their housing allowance
It is common for American expats to forget about their housing allowance, and therefore end up not being able to maximize such. They should be negotiating to make sure that their housing allowance is discussed in detail, and not simply included in their base pay. If this is not spelled out and not separately given to expats, they would most likely miss out on the potential exclusion that may help save more money from being taxed.
4) Not keeping themselves mindful of the ETFs that are acceptable and allowable in the country where they reside
Most Americans think that they should not partake in foreign investments, specifically foreign mutual funds. As a result of this, they only partake in US investments and US ETFs. However, the problem is, in some jurisdictions, US ETFs are not permissible for not following certain regulations.
For instance, you have an investment account with Charles Schwab. If you are residing anywhere in Europe, you would not be permitted to buy a US ETF. Although you can keep the ones that you already have, you may not be allowed to buy them again once you sell them. On top of that, you also would not be able to buy European mutual funds or ETFs because such may not be allowed on the platform. In short, Europeans do not want American ETFs, and Americans do not want European ETFs.
As an American expat who already has any American ETFs, you must think really hard before selling them, because making that decision may not lead to favorable outcomes.
5) Not knowing the charges on the products being marketed to them yet signing into such anyway
In most developing markets, people usually tend to not be professional. They are inclined to being salespeople of financial products. Everyone wants to tap into the American expat market, but most of the products being marketed to expats, unfortunately, do not have clear IRS guidelines.
Expats should avoid signing into any product marketed to them when they do not understand the charges on those products. Even most financial advisors do not understand those matters, and if they did, they usually would not tell the expats at all.
This is something crucial that expats should keep in mind because even if they sign into the products that are being marketed to them, they would not get the return that the market gets, specifically in the early years.
In conclusion, for American expatriates to avoid investment mistakes, they must see to it that they work with companies that will accommodate Americans living overseas, set their target retirement age, and take note of the amount they have to set aside every month (before making any discretionary spending) for them to be better prepared for their retirement, discuss their employment contracts and maximize their housing allowance, be mindful of which particular investments are allowable in the areas where they live and avoid signing up for non-US investment products and platforms without knowing first all of their built-in charges.