The question of how to make your money grow as an expat can seem complex, but according to ANDREW TALBOT of Expat Financial Planning, part of Avrio Wealth, it’s actually quite straightforward. Here are his tips on investing, including risk, timing and costs.
Investments are tools for making your money grow, from a house, to a business or a traditional investment portfolio. For example, you might invest in stocks, property or shares in a fund each month. Investing can be a great way to get more from your money, but it’s not for everyone.
The first thing is to ask: why do you need to invest? Planning your goals and timeframes is an important consideration for any investment. If you have debts, then it might be a good idea to clear these first.
Whether investing makes sense for you will depend on your goals – and, more specifically, if these are long-, short-, or medium-term.
- Short-term goals: things you plan to do within the next five years.
- Medium-term goals: things you plan to do within the next five to 10 years.
- Longer-term goals: things for which you won’t need money for ten years or more.
None of us likes to gamble with our savings, but the truth is there’s no such thing as a ‘no-risk’ investment. You’re always taking on some risk when you invest, but the amount varies between different types of investment.
For instance, the money you place in secure deposits such as savings accounts risks losing value in real terms (buying power) over time. This is because the interest rate paid won’t always keep up with rising prices (inflation).
When you start investing, it’s usually a good idea to spread your risk. Most people choose from four main types of investment, known as ‘asset classes’:
- Shares: you buy a stake in a company
- Cash: the savings you put in a bank or building society account
- Property: you invest in a physical building, whether commercial or residential
- Fixed interest securities (also called bonds): you loan your money to a company or government
There are other types of investments available too, including:
- Foreign currency
- Collectables, such as art and antiques
- Commodities, such as oil, coffee, corn, rubber and gold
- Contracts for difference, where you bet on shares gaining or losing value
The various assets owned by an investor are called a ‘portfolio’. As a general rule, spreading your money between the different types of asset classes helps lower the risk of your overall portfolio underperforming.
Timing it right
If you’ve got plenty of money in your cash savings account – enough to cover you for at least six months – and you want to see your money grow over the long term, then you should consider investing some of it.
The right savings or investments for you will depend on how comfortable you are to take risks, and on your current finances and future goals.
To make an investment plan, you’ll need a ‘platform’ or product. There are many different platforms in Singapore from life insurance policies to straight do-it-yourself investment platforms.
Factors to consider
There are various things to keep in mind when investing; here are four of the key ones.
#1 How much will it cost?
Platforms and advice both have a cost. If you buy investments, like individual shares, directly, you will need to use a stockbroking service and pay dealing charges. If you decide on investment funds, there are charges – paying the fund manager, for example. And, if you get financial advice, you will pay the adviser for this. Ask any firm to explain all their charges, including if there are penalties to exit early, so you know what you will pay before committing your money. While higher charges can sometimes mean better quality, always ask yourself if what you’re being charged is reasonable and if you can get similar quality and pay less elsewhere.
#2 What type of investments can I purchase?
Being able to spread your risk in the different assets classes mentioned above is normally achieved by purchasing a pooled investment. These structures have many different versions such as index-tracker funds, unit trusts or exchange-traded funds. Each has its advantages and disadvantages.
#3 Which currency do I invest in?
The final currency in which you spend the invested money is important; currencies move hugely, and your investment may increase or decrease in value as a result of these movements, regardless of if the investment moves.
#4 Are there tax advantages that you should consider?
Some products may have advantages in your home country through specific tax-exempt rules. Getting advice from someone who understands these implications is essential.
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