Making use of neglected investments

Many of us move around from place to place during our expat lifetimes and go into investments that seem like a good idea at the time, based on the place where we are. Years later, some may not be as relevant or simply do not work for us in our current location. They are often inaccessible for a long period of time and simply languish somewhere, wasting away to very low values.

Expatriates are investors out of necessity. They are not cared for in their host countries in the way they would be back home. The vast majority of us get the travel bug and become lifelong travellers once we have been living and working abroad for a while. Some others become expats when they retire because the appeal of a more exciting life lures them to foreign climates and cultures.

To do all this you need to be financially independent in the country of your residence, which is often where it gets challenging. Perhaps you have some financial arrangements back home which are insufficient and inappropriate for your overall needs. The financial requirements where you are now based cannot compare to those in your country of origin, circumstances being so different.

Most expats realise the dilemma they face. To survive they need to become financially independent. They build wealth but then have difficulty managing it successfully, often resulting in insufficient reserves to sustain them in the future (see Net Worth Aug 10, 2014: Do you have adequate retirement reserves? and March 10, 2013: How long will your pension last?).

Such things as deferred pensions in your home country, over which you have no control in terms of investment management, frequently deteriorate in value. Some people even forget that they have these assets. They are parked in a convenient place for the manager and are usually only going in a southerly direction.

Some plucky expats self-manage their offshore investments, which can take a great deal of their time. Others have invested in specific products through advisers who pay no further attention to their clients after the papers are signed. These are the forgotten investments I refer to. The portfolio simply wears away, losing real value and falling way behind in terms of inflation.

Do you have one of these investment plans? They seem to be Catch-22 vehicles. The value is probably less than you had hoped, but it you attempt to surrender the plan and withdraw the money, you face a substantial hit in penalties.

Whichever way you choose to go, you are the only loser. This type of experience often shreds the confidence expats have in financial advisers.

There are solutions available. One is to find an adviser you can trust. If he is worthy he will be willing to assist you in getting your investments back into shape and will work with you extensively to ensure you dont suffer the heavy penalties that can arise when you make changes to these older schemes.

The adviser will know how to use your investment vehicles to your best advantage, offering you good solutions moving forward. He may suggest restructuring your old investments into a new portfolio product. There are new-generation plans available today with far lower charges and superior investment choices.

But if you are asked to bear any surrender penalties when exiting your current situation you will be wise to question this. At that point, seeking advice from another adviser is prudent. When an investment is restructured correctly, in the majority of cases your adviser will be able to arrange for exit charges to be recovered in full, making sure the overall cost to you is zero.

No matter whether you stick with your old investments or restructure into new ones, your adviser should be able to guide you through the maze of decisions so that you have a clear idea of the overall strategy and realistic growth targets. This will mean your investment works best for you in your circumstances abroad.

In making decisions your adviser should also ensure any recommendations match your risk appetite. In this respect he needs to complete a risk profile assessment with you to understand your goals and expectations. This enables him to ensure you both understand the direction to take.

If, for example, annual growth of 10% is your expectation and you say that you are a cautious investor, your adviser should let you know that this is impractical. No cautious investor in todays markets should expect a return of that magnitude. Therefore the risk profile is important and will help the adviser understand you and your objectives, fears and attitude toward risk.

It is also vital that your adviser understands your overall situation in order to offer you holistic advice. I once met an expat who wanted to discuss one of his specific portfolios, which amounted to US$250,000 (8.2 million baht). He was a cautious, risk-averse person. His portfolio had declined more than 20%. When we explored further he revealed this investment was only a relatively small part of his overall net worth, which amounted to more than $6 million.

After lengthy discussions we agreed that this specific portfolio should be placed in adventurous holdings because the rest of his assets were producing good results from cautious and balanced strategies.

In this case, despite the investors cautious attitude, it was relevant to invest this part of his assets in higher-risk areas to try and make up for the losses already suffered. This strategy worked very well and the investor was happy with the results.

In formulating a plan with your adviser he should meet you on a number of occasions, initially creating a profile of you to understand your situation and how you think about your finances and plans for the future. He should also explain how he is thinking and the strategies he intends to employ with you.

This should be an open discussion between you. Although his ideas will already have been formulated it would be wise for you to question his thinking and challenge some of the ideas so that you both have an understanding of each other and agree on the overall approach.

These sessions will also allow you both get to know each other and feel comfortable with the way things are shaping up. The relationship is very important and feeling that you have an adviser and confidante rather than a product pusher is imperative to your long-term plans.

There are many neglected investments held by expats. They frequently fall into decay because of neglect. Get a second opinion and make sure you are one of those who do not suffer as a result of this. n

Andrew Wood has been an expat in Asia for 35 years and is executive director with PFS International. He has been writing Net Worth articles for seven years and has made a significant contribution to the PFS library of financial service articles dating back more than 10 years. These articles, which cover the complete A-Z of financial planning, are available to readers on request. Questions to the author can be directed to PFS International on 02-653-1971 or emailed to [email protected].