Finance: Ways expats lose money

PHUKET: Financial problems, or losses, are often the major reason expats are forced to return home or worst – end up stuck somewhere they no longer want to be.

If you don’t want to end up in the same position as the many failed expats, keep in mind the following ways they lose money abroad.

OFFSHORE INVESTMENT PRODUCTS

Investing in complex offshore products requires even more due diligence on your part than investing in ‘normal’ investment products in your home country, as additional due diligence may reveal extra risks.

For example, high interest rates are usually paid to compensate for risk, either because of what the product itself is invested in or because it’s based in a jurisdiction with less financial regulation and oversight.

If you have trouble understanding even basic investment products like exchange traded funds, don’t even think about investing in complex offshore investment products.

FOREIGN EXCHANGE RATES

Currency fluctuations and FX transaction fees are a fact of life for expats and you will probably find there are times when your income and living expenses in multiple currencies are moving in the wrong direction.

And while currency fluctuations and transaction fees can be managed or the risks minimized (such as maintaining accounts in multiple currencies so you are forced to draw on one for money at an inopportune time), be cautious trying to speculate or profit from currency movements as you will probably end up getting in or out at the wrong time.

Likewise, you should also be extra cautious of investment products that force you to lock up your money in one currency for a long period of time or don’t offer you much flexibility to get in or out quickly should the need arise.

BUDGETS

The need to live by strict budgets becomes imperative when living abroad.

You will need to deal with currency fluctuations and likely much higher rates of inflation – meaning you will need to track exchange rates and prices.

Failing to properly budget can easily mean you will end up spending significantly more than you need to.

REPATRIATING MONEY

If you are working abroad or have managed to earn a big capital gain in a currency other than that of your home country, you may have trouble repatriating your wealth out of your adopted country and back home, or into your home country’s currency.

Many countries have or could institute strict capital controls (especially in times of crisis) while a negative currency movement could easily wipe out your capital gain or savings.

Don’t forget about transaction fees or any exit taxes that you could be liable for.

PROPERTY

Buying or speculating on property might be commonplace in your home country, but buying property in a foreign country is a minefield, as the rules and regulations are inevitably much more complex and titles are often not clean.

In the worst case scenarios, you won’t be able to sell the property or you may find yourself paying heavy taxes to multiple jurisdictions on any capital gain.

You also might have your losses disallowed for tax purposes.

TAXES

Depending upon your citizenship, you may have tax liabilities in both your home country and in any other country where you live or perform work.

If you are an American and thus subject to worldwide taxation and disclosure requirements for foreign financial accounts, you will probably need to hire an accountant who specializes in expatriate tax preparation to avoid increasingly heavy fines and penalties for non-compliance.

FINANCIAL ADVISERS

As an expat, you will need to seek financial advice, ideally from a financial adviser who is independent and regulated.

Remember, while referrals are always a good way to find competent professional advisers, they aren’t effective if the person making the referral failed to do his or her due diligence on the person first.

Don Freeman, BSME is president of Freeman Capital Management, a Registered Investment Adviser with the US Securities Exchange Commission (SEC), based in Phuket. He has more than 15 years experience working with expatriates, specializing in portfolio management, US tax preparation, financial planning and UK pension transfers. Don can be reached at 089-970-5795 or email: freemancapital@gmail.com.