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Personal Finance for Expats

5 High-Risk Investments & Reasons to Be Cautious of Them

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When it comes to investing your money, there are both low-risk and high-risk options. This article focuses on certain high-risk investments and reasons why you might want to be wary of them. But first, it is necessary to know what high-risk investments are. A high-risk investment is an investment that has the potential to help you get a higher than average relative return on the money that you have invested. But these products or types of investments that we will discuss may also come with a high dose of risk. Notice that the key word here is potential. This means that if you, as an expat investor, choose to use these methods to invest your money, you may also be taking a high risk as well. Why are they considered to be high-risk? A high-risk investment can be analyzed in two ways: the first of these ways is that there is a larger percentage or chance of a loss of capital. The second way is that there is a very high chance of loss when you are immersed in a high-risk investment strategy. Bu what are some of these high-risk investments? Read below to find out!

  1. Leveraged Investments 

This type of investment involves using borrowed funds in an attempt to increase the potential return on any investment. There are various leveraged products that exist on the market, such as exchange traded funds with double or triple the leverage. The risk involved with this type of investment is that let’s say that you decide to invest up to three times the value of the index. If the market goes down, then the risk would be that you will lose all of the money that you invested using leverage. Leveraged investments are done in such a way that it seeks higher investment profits by using borrowed money. The most common example of leverage is the one called financial leverage, which is using borrowed money to purchase asset(s) because you expect that the asset has potential to generate future income or rise in value. Hence, the greater the amount of your debt is, the greater the value of the investment will be. As the leverage rises, so does the risk of failing, because it becomes more difficult to pay off the debt that you have accumulated. There are two other types of leverage and they are construction leverage and instrument leverage. Construction leverage is when you combine securities in a portfolio in a certain way. For instance, the investor can choose to “hedge” certain assets. An example of instrument leverage is when you invest in gold that has the potential to magnify an increase in the price of futures three-fold.    

2. Trading Using Options

Another high-risk investment is called Options or Trading Using Options. This investment strategy allows an investor to make money off of stocks or other securities even if there is no rise in the markets. In this type of investment, there is an options contract that is involved. When an investor buys an options contract, they are essentially buying the right to purchase or sell an asset at a set price before a certain date. For instance, if an investor agrees to buy 200 shares of Microsoft stock priced at $250 a share and that stock ends up trading for less than that, the investor makes money. Why is this a high-risk investment though? There is an option called a naked option where an investor can choose to bet against a certain stock. If the investor believes that this stock will not go above the said $250 per share, he or she enters into a contract that is set to expire in June of 2020, for instance. When June 2020 comes around and Microsoft’s stock ends up trading at $350 per share, the investor then loses the difference or $100 per share, resulting in a significant loss. 

3. High-Yield Bonds

This type of investment strategy is common for older investors and retirees who are looking to invest in the fixed income market through the use of corporate, municipal bonds, and US Treasuries. It is possible to get a higher rate of return from bonds if you are willing to take the risk to purchase riskier debt. I wouldn’t encourage anybody to get into a ton of debt but what was described earlier is known as the risk premium. One of the most common bonds that is a high-risk investment is what is known as a “junk” bond. Junk bonds are junk in the sense that they have a higher risk of default compared to bonds that are issued by large companies or governments. Junk bonds are issued by companies that are not doing well financially. These kinds of companies have a higher risk of defaulting, not being able to pay their interest payments or repaying the principal that they owe to investors.      

4. Currencies & Cryptocurrencies

When it comes to currencies, these can change quickly. The rate of success using this investing strategy depends on how you can predict these changes and act on these movements, which will then determine how successful you become on the foreign exchange market or Forex, for short. Currency swings, especially outside the US, can allow an investor to get high potential returns if they forecast the changes correctly. However, a wrong bet on a currency can result in the loss of all the money you have invested. In addition to this, currencies are often traded using leverage, so in a situation where you made a mistake, betting on a currency can make your losses even bigger. A cryptocurrency is a digital or virtual currency that becomes successfully secured by cryptography, and while it definitely deserves its own article, one can easily look up the history of Bitcoin, Ethereum, and other cryptocurrencies to see that huge fluctuations in price are not uncommon. These are certainly not for the faint of heart.

5. Foreign Exchange Traded Funds (ETF’s)

At its most simple level, exchange traded funds or ETFs for short are investment securities that are similar to mutual funds but they trade like stocks. They can be traded by an exchange basis and ETFs are commonly referred to as a “basket of assets”, where the investor does not need to purchase these assets by themselves. I bet you are wondering how an ETF works. Typically, the person or company that is providing these funds owns the initial assets and they design or formulate a fund to keep track of how these investments are doing. They then sell the shares in those funds to investors. While ETFs based in the US have a long history and have generally been a solid investment, it may not necessarily be the case for foreign ETFs, given that we tend to see more volatility in less-developed foreign markets.

How to Not Compare Yourself to Other Expats When Investing

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This next article will focus on how to not compare yourself to other expats when it comes to investing. When we speak about investing, most people assume we are investing in stocks and bonds. However, that is not the only way to invest, and furthermore, that might not be the way you want to invest. After all, you are your own person, with your own strengths, weaknesses, and value system. I say this because I believe we spend far too much time comparing ourselves to others, and this may actually be detrimental in getting us to where we want to be with our personal finances. So, how do we get started with not comparing ourselves to other expats?

Realize, first of all, that every expat will not invest their money in the same way. One person may want to accumulate gold and precious metals, while another person may use real estate as a way to invest their money, while yet another person believes in investing in equities. Also, depending on where someone lives and their country of citizenship and residence, they may have different investments or programs available to them. None of them are wrong, although they will each likely see different returns on their investments, with different timelines. Take the time to figure out the type of investments that work for you, given your life situation, risk tolerance, income level, and financial goals, and make sure your investments suit your needs, instead of being envious or resentful of someone who may currently be in a better financial situation than you.

Also, when you take a look at a wealthy expat’s life on social media or in a social setting, you are really seeing a small part of what is going on in that person’s life. While life as an expat can certainly be exciting, there are many challenges as well, and it’s not always easy living in a country that is different from where you grew up. Additionally, expats come from all walks of life, and not everyone lives on a fancy expat package in a walled villa with a private driver. Believe it not, some expats are just getting by, and are not necessarily in a better financial situation than the average person in the country they are living in. I would always be told by others or hear others say that we shouldn’t compare ourselves to others, because we don’t know what their life is all about. It is easy to compare yourself to others who may be doing very well financially.

But I believe that we should not compare ourselves to others when we are dealing with such an important issue as personal finance. Many people have sacrificed years of their life to get to where they are now. One very important thing that we can all remember regardless of our age is that we have to learn how to effectively save and invest our money, and all of us should do so according to our own personal situation and to the best of our abilities.

In addition to what has been already mentioned, comparing ourselves to others when it comes to personal finances and other areas of our life, may plunge us into a cycle of negative thinking that will creep into our minds and consume us. It is too easy to be negative, and there will always be somebody that is doing better than us financially. Comparing ourselves to other expats or even finance bloggers can make us feel like we have been let down. For instance, if you were able to save and invest 20% of your income this year, up from the 10% that you saved and invested last year, even though that is a big accomplishment, you will always find someone who might have saved and invested 35% of their income in a year. Thus, you will feel like you don’t measure up to others, and you will be frustrated with your results. Whatever changes you are making to your finances in life, try to be happy with them, because as long as you are doing what you can to improve your finances, you are on the right track. There is a quote that briefly states why we should not compare ourselves to others, which we can use here to emphasize the main point. The author is not known, but he or she says: “Bottom line: don’t compare yourself to others. Compare yourself to the person you were yesterday.” This quote is simple yet effective, because as long as you are making progress toward your financial goals, the person that you were yesterday is not who you are today. All of us are constantly evolving and changing, and that is actually a beautiful part of the human experience.

Too often, we look at the lives of the people around us and compare our lives to their lives. Most of us have done this before, so you are not alone in this regard, if you have done that. If such comparisons can help you to improve yourself and your finances, then that is a good thing. For most of us, these kinds of comparisons lead us into a trap of negative thinking, of feeling like we don’t measure up to others who have become more financially successful than us. We might then begin to feel like we are not good enough and that we don’t deserve to be financially successful or prosperous. The truth is that prosperity is our birthright. We have to make sure to focus on our financial goals and strive to meet those goals while staying away from the incessant comparison trap. With that being said, good luck with your investments as an expat and remember that you are unique, with your own set of skills and abilities, and your own life experiences.

What is Stealth Wealth and How to Practice It?

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In the midst of building wealth, we often (correctly) pay much attention to how to build that wealth, but we do not often think about the implications of becoming wealthy, especially as it relates to society or other people. What follows, then, is an explanation of stealth wealth and some ways that one can practice it, particularly if you are an expat.

To word it simply, stealth wealth is when you don’t reveal to other people your net worth or how much money you make. Stealth wealth involves keeping your wealth and assets a secret.

But why should one practice stealth wealth, particularly if they are an expat? After all, for many people, wealth or money is a symbol of freedom. That money allows you to spend time with your family, travel around the world, and enrich yourself with loads of new experiences. Additionally, becoming wealthy is something that many people yearn for, so why shouldn’t we enjoy the fruits of our labor?

Despite the fact that many of us consider becoming wealthy to be a good thing, there are certain people out there who do not agree with this viewpoint, and in some extreme cases, will go to great efforts to stop others from obtaining wealth, either through lobbying, legislation, public pressure, protesting, or, even physical violence.

Further, in some cultures, ostentatious displays of wealth are considered inappropriate and/or immodest, and in some countries, showing off your wealth might put you in harm’s way, literally. As expats, given that we are not living in the country where we originally came from, we owe it to ourselves as well as the inhabitants of the country we live in, to respect the local cultures and customs, and if that includes toning it down a little bit, then it is a good idea to do so. We must also remember that many people erroneously believe that all expats are living and working in another country on a glorious expat package with incredible perks. While that may be true for some, it is most definitely not true for all. Therefore, practicing stealth wealth will go a long way toward eliminating stereotypes people might have about expats.

Also, in practicing stealth wealth, perhaps you will become the kind of person that people will secretly root for, and they may even wish for you to achieve greater success. To use a sports analogy, many people appreciate an underdog and hope that they will win. Underdogs subsequently feel that they have less to lose, so they are freer and more relaxed. Using a more relevant example, if you show up at work with a $100,000 car and constantly talk about that amazing vacation you had when you went to Monaco, your colleagues may secretly begin to envy you, or even despise you. Who knows, your boss may even be less likely to give you a pay raise.

When you don’t reveal your wealth and people assume that you are barely making ends meet, you will be almost immune from scrutiny from other people competing against you. Why is it that a super wealthy CEO of a major corporation or a prominent celebrity is more likely to receive more attention from the public at large compared to a struggling low-level employee? This is because the wealthier CEO or celebrity has power and influence, so they will naturally attract much more attention. People will expect less from you if you stay silent about having made lots of money or having accumulated great wealth.

So, what are some ways we can practice stealth wealth? There are many ways, of course, but some of the below might be helpful:

  1. Do not brag about any material things that you own. Further, in some countries, it is not recommended to wear expensive jewelry or walk around with items that appear expensive, due to safety concerns. Always be aware of your surroundings, where you are living, and what the local customs and cultures dictate or recommend. The old adage of doing as Romans do when in Rome, is always helpful.
  2. Do not reveal the true extent of your income or wealth. This point goes without saying. Talking about your wealth is a sure way to instill suspicion, or, at best, have people think you are arrogant. This will likely have a negative impact on building good relationships with others.
  3. Behave and speak in a modest manner. Even if you are very intelligent and/or skilled in a certain field, or even if you have achieved a great deal of success in a given endeavor, being modest and not broadcasting your accomplishments will win you respect and friends. Further, in countries such as Japan and China, being humble and modest is considered a huge virtue.
  4. If you own a car, instead of driving to work, it may be better to take advantage of public transportation such as trains or buses, or even ride a bicycle. It is nearly always cheaper to take public transportation, and in many cases you will arrive at your destination faster. Additionally, you won’t need to pay for things such as car maintenance, gasoline, car insurance, tolls, and so forth, and so it will be more beneficial to the bottom line, also. If you absolutely must own a car, you might not want to buy an expensive model. Driving a very nice car to your place of work is a good way to draw attention to your income or wealth (even if you are not wealthy) and it may even cause others to be envious of you.
  5. Related to a previous point, give praise to others for their success instead of feeling like you need to constantly let the world know how great you are. Be happy when others succeed and do not belittle their achievements. If you want to be a successful expat, then praise others for their success and be happy that they are successful. You get out of the world what you put out there, so if you put out the vibration of praise for others’ success, you might even attract that same goodwill back to you.
  6. Another wise thing to do if you want to stay in the category of the “invisible” rich, is to not live beyond your financial means. For instance, do not spend more money than you earn, or attempt to compete with others and senselessly accumulate things. Make sure that your expenses do not exceed your income. It sounds incredibly simple, but you would be surprised the number of people who earn a high income and do not have much to show for it. Just because you have been fortunate enough to be making a good living, does not mean you need to be profligate with your spending.
  7. Get involved in volunteer work or charitable activities. One of the biggest misconceptions about wealthy people (especially in developing countries) is that they do not volunteer their time or money to help worthy causes. Therefore, by volunteering your time at a children’s orphanage, or donating money to a cause or organization you believe in, you will not only generate goodwill in your community, but people will also be less likely to think you are wealthy, and hence, you will be taking attention and focus away from yourself.

While the above items are only some of the ways one can practice stealth wealth, and there are surely many other things one can do, I hope this article will spur some more discussion on this topic as well as get people thinking about how they portray themselves while overseas. If you are an expat reading this article, are you practicing stealth wealth? If not, why not? It may be difficult to put into practice, but engaging in stealth wealth will not only be good for your pocketbook, but also in terms of building relationships with other people, and this is crucial if you wish to be successful as an expat, living in a land that is different from yours and with customs that may seem very foreign to you.

Some Reasons to Invest Offshore

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When discussing the topic of investing offshore with friends, family, colleagues, and acquaintances, the question of “why invest offshore?” invariably comes up.

In my mind, there are a myriad of reasons to invest offshore, but here are some of my favorite ones:

Increased privacy – Protect yourself from the increasing loss of privacy, and prevent domestic credit reporting bureaus from collecting information on you and your assets. Many offshore financial centers have strict banking and confidentiality laws. As long as one is not engaging in arms trafficking, money laundering, or other illegal activities, investing offshore will better enable you to protect your privacy.

Earn higher returns – Offshore funds may have more freedom in terms of what they can invest in, whether they go long or short, as well as more freedom to take advantage of market fluctuations and cyclical movements. As a result, you have the potential to earn higher returns than you could in your country of residence, where there is probably more regulation and red-tape, and where fund managers might be restricted as to the investments they are allowed to make.

Avoid high taxes – Depending on your citizenship and where you reside, many low-tax districts can offer you products that have little or no tax at source. In addition to this, by forming an offshore corporation or trust, you can potentially lower your tax burden.

Protect your assets from being forfeited – Many offshore financial centers are not required to accept the laws or civil judgments of a foreign government. By creating a foreign corporation and/or trust, you can prevent your assets from being seized by our government and/or lenders who want to collect on outstanding debts. As societies are becoming more and more litigious, it is a good idea to invest offshore so you can protect yourself against any potential lawsuits that may occur in your country of residence.

Avoid having to depend on a state pension – Even if you live in a country that offers a state pension, it is doubtful that a state pension alone will provide you with the money to have a quality retirement. With an aging workforce, diminishing returns, and fewer workers to contribute into state pensions, depending entirely on such a vehicle to provide you with a quality retirement is not the best idea.

While there are risks associated with investing offshore, and there may be increased complexity when managing an offshore portfolio (not to mention tax implications), I believe the benefits are too tantalizing to ignore. Also, there are risks even when one invests in familiar investment vehicles in their home country. There’s no way to completely eliminate risk, but with the right strategy and right knowledge, in addition to the correct team of advisors (financial and tax), one can reap huge benefits investing offshore.

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