TheMostCommonInvesting MistakesMadebyAmericanEx-Pats
AmericanslivingabroaddonothaveiteasywhenitcomestoinvestingFromUS brokeragesprovidingonlya30-daynoticebeforetheshutdownofforeignresident accountstothenightmareofholdingforeignmutualfunds,itcanbecomevery challenging.
Here’sMASECO’slistofsomeofthemostcommonmistakesAmericanex-patsmake wheninvesting.
ForeignmutualfundsmayseemattractivetoAmericanslivingabroad.However, accordingtotheIRS,foreignmutualfundsareconsideredaPassiveForeign InvestmentCompany(PFIC)andcanbeaproblemforUStaxfilersIfyouareaUS citizenoraUSpermanentresidentlivingandworkingabroadandinvestingyour
savingsthroughanon-USfinancialinstitution,youneedtounderstandPFICs.PFICs aresubjecttospecialtaxtreatmentbytheUStaxcode.
Asidefromthetaxrateappliedtotheinvestmentsbeingmuchhigherthanthetax rateappliedtosimilarUS-registeredinvestments,therequiredcostforrecordkeepingandreportingPFICinvestmentsonIRSformswillrunafewthousanddollars perinvestmenteachyear.
2.PurchasingInvestmentProductsOutsideoftheUSA
Foreigncountriestakearatherlooseapproachtoregulatingforeigninvestment advisors,resultinginbadactorsenteringtheindustryandsellingfinancialproducts. Thesefinancialproductshavehighcommissions,lengthylock-inperiods,andpoor performance.Althoughthesefinancialproductsmaybesuitableforsome,theydo notbelonginanAmerican’sportfolio.
StayconnectedwitharegulatedUSadvisorwhoisnotincentivizedbycommissions andadherestothelegalobligationtoactandinvestforUSex-patsproperly
3.DoingNothing
ManyAmericanex-patsareintimatedbythecomplicatedrulesandendlesshorror storiestheyhaveheardaboutinvestingwhilelivinginaforeigncountrythatthey takenoactionatallEfficientlyinvestingwhilelivingabroadcanbedaunting,buta littleresearchcangoalongway.QualifiedadvisorsfromMASECO’sreliablewealth managementfirmcanhelpwiththesecriticaldecisionsInvestingyourmoneywhile awaywillhelpyoukeepupwithyoursavings,whetherforyourchildren’scollege educationoryourretirement.
4.MisunderstandingCurrencyExposure
Americanex-patinvestorsoftenmistakethecurrencyinwhichtheirbrokeragefirm reportsthevalueoftheirinvestmentwiththefundamentalcurrencydenomination ofthoseinvestments
Forinstance,manyforeignpubliccompanieslisttheirsharesintheirhomecountry andotherforeigncountriesTheselistedshareswilltradeindollars,butthatdoes notmakethemUSdollarinvestments.ThelistedsharesintheUnitedStatestrack theperformanceofthesharesontheirprincipalexchange
Likewise,theperformanceofamutualfundlistedintheUSthatinvestsinforeign currencybondsisdeterminedbythefateofthosefundamentalcurrenciesItisnot relevantthatthefundtradesinUSdollars.Theendeffectisthatyoucanbuildmulti-
currencyinvestmentportfoliosthroughaUSbrokeragefirmthatlistsallinvestment valuesinUSdollars.
5.OverinvestingintheCountryofCurrentResidence
Opportunitiesforrapidgrowthmayappearendlessonedayanddisappearthenext morning.Whenearningprofits,itiseasytobeinfluencedby‘progress’or‘change.’ Thereareuniversallawsofdiversification,andthepenaltiesforfailingtoobeythose lawsareequallyuniversal.
Takeprofitsinthelocalmarketandre-investthemintodifferentmarketsincasethe long-termtheoryturnsouttobealittletoooptimistic.
6.PurchasingNon-USTaxCompliantInsurance
Anynon-USregisteredinsuranceproductsthatholdcashvalue(policiesthatcanbe redeemedforacertainamountofcashinstantly)donotqualifyunderUStaxrulesas insuranceTherefore,theydonotbenefitfromanytaxadvantagesthatcanmake insuranceagreatlong-terminvestment(primarilytaxdeferral).
Withoutthisprotection,yourinsurancepolicyisnothingbutaforeigninvestment accountintheeyesoftheIRS.Furthermore,itislikelyaforeigntrustloadedwith PassiveForeignInvestmentCompany(PFIC)investmentswhosetaxreporting requirementsaretoxicforUStaxpayers
MASECOisanindependentwealthmanagementfirmthatworkstorefinethelivesof ourAmericanandglobalclientsbysimplifyingtheirwealthmanagement requirements.Ourimmenselyexperiencedandskilledadvisorsareavailabletohelp avoidthesecommonmistakesmanyAmericanex-patsmakebydeveloping customizedinvestmentstrategiesforeachclient.