Things You Need to Know Before Investing in a Foreign Country

Mihai Cristea 24/02/2021 | 13:26

Living and working abroad is a very rewarding experience – personally, professionally, financially, and culturally. Millions of people all over the world consider it to be exciting and a matter of prestige. 

 

If you live in a foreign country you may deal with your financial situation in many different ways. You may be a spender or a saver, but are you thinking about being an investor as well? If simply saving money isn’t good enough for you and you want to make it grow – this is the right path for you. Keep reading this article for some useful tips and tricks that you should consider before investing your hard-earned money in the current country of your residence.

You may be wondering how much and when you should invest. Well, this depends on your profile only, including your circumstances, short-term and long-term goals, responsibilities, current liabilities, income, etc. Make sure you think very carefully about all these factors before you actually invest. This simple guide may give you some new ideas. Let’s begin!

 

Do Your Own Research

Sometimes it’s better to avoid listening to “expert” advice offered by “well-wishers”. You need to educate yourself and do your research before investing. People around you may or may not have the financial expertise and their recommendations could be colored by their own beliefs and prejudices. Not to mention that nobody can understand your situation completely, so it’s best to be well informed and make your own decisions. 

Finding out about the country’s economy and the value of foreign direct investments is essential. There are plenty of great opportunities out there. Financial analysts have discovered a huge potential for foreign investments in Romania but the U.S. is (once again) on the top of the list of countries that attract FDI with an inflow of $251 billion. Some of the countries that follow the U.S. closely are China, Singapore, Brazil, the U.K., Hong Kong, and France. 

Don’t forget to check out some great investor immigration programs that can be a gateway to citizenship. For example, the Portugal golden visa program can grant you Portugal residency and give you and your family members access to public education, social security, and health care. Since the global economy is going through uncertainty you need to stay on top of the game and be well informed. There are many options and we know it can be overwhelming sometimes but make sure you don’t invest your hard-earned money based on “hot tips”. Do your research through trusted sources and put your “critical thinking” hat on.

 

Save First, Then Invest

If you live abroad, ideally your job in the new country should bring in enough money for you to spend and save. Experts advise dividing your income into three categories:

  1. Spend
  2. Save
  3. Invest

 

The amount you spend will depend on personal circumstances and your lifestyle. Make sure you analyze your spending patterns and prepare a weekly and monthly budget. Sticking to it can sometimes be challenging. You may ask yourself a few questions that can help:

  • What are your current expenses?
  • How many are fixed or recurring?
  • Can some of them be eliminated or reduced?
  • How many expenses are variable?

 

The last question is probably the most important one because most of your savings can come from variable expenses. Limit the expenses to the essentials only. When you create your spending budget you will have a rough idea of how much you can save. Put this money aside and don’t touch it unless there is an emergency. The rest of your money can go into your investment. 

Learn About The Risks

Knowing your risk or reward profile before investing is crucial, especially in a foreign country. It all depends on your savings, expenses, and financial responsibilities. You should think about your risk-taking capacity and how much money you can stand to lose if you make a bad investment. Also, define what you consider to be a reward. People may have extremely different perspectives when it comes to risks and rewards. Do you prefer a low-risk investment with a 10% return or investing in the stock market which may give higher returns even though it’s riskier?

If you are planning to live in a foreign country for a long time you may look into legally investing in foreign property. The returns may be significant, depending on where you live. You can eventually sell this property or rent it. Don’t forget that property investments attract a lower tax obligation than investments in stocks and bonds. Make sure you are familiar with the laws, especially in the areas of compliance, reporting, and taxation.

If you would rather invest in tradable assets (stocks and bonds), be sure to work out a plan and define your acceptable trading range in advance. This means to figure out how it will look like in best-case and worst-case scenarios. When you set your limits you will know at what point the transaction will be too expensive. Your financial future is important, so don’t leave it to chance.

 

Talk To An Expat-Friendly Investment Advisor Or Broker

In many countries all over the world, new laws are being enforced every day. This refers to foreign investments, as well. For example, in the U.S. the FATCA (Foreign  Account Tax Compliance Act) gave the IRS the power to enforce laws that concern reporting of foreign investments and taxation made by Americans. This is the reason many foreign institutions don’t allow U.S. expats to open overseas investment accounts. Some brokerage companies are unwilling to work with them, too.

This situation isn’t complicated in the U.S. only, but it constantly causes a lot of confusion among investors around the globe. Finding an investment advisor who specializes in working in this field is the best way to avoid potential losses while also clarifying the legal environment in your country of residence.

Moving abroad can be truly amazing and life-changing. It does, however, come with numerous challenges, especially regarding money management and investing. Don’t let your limited experience and fluctuating exchange rates and taxes discourage you. With a little bit of research, you can make wise and profitable foreign investments.

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