As an expatriate you need to make the most of your financial affairs but often it is difficult to find good advice about investing and taxation. This guide has been produced to help you through the jargon, choices and complexities of investments made offshore by giving you the basics to investing whilst you are living in Spain.
- Don’t put all your eggs in one basket. Yes, seems obvious but this includes the less obvious. Investing all your money into a business in Spain is not wise. Nor is the other extreme of leaving all your money in the bank on deposit (even if it is different accounts). The bank account situation is an example we often see here in Spain. Yet bank deposits often don’t keep up with inflation. And as
we head for inflationary times this approach can cause a big erosion of your wealth and your lifestyle
- Keep an emergency fund. The unexpected does happen. Particularly, the need to dash home to deal with family emergencies. We recommend 4 months of living costs kept as an emergency fund.
- Invest in the currency that you will spend the money in. If you are going to live in Spain and spend your money here invest in Euros. This removes all your currency risk. Leaving it in Sterling and hoping the exchange rate will improve is dangerous. The level of a currency is RELATIVE to another currency. You might expect Sterling to strengthen if interest rates go up BUT if European rates
rise too Sterling can still fall. Remove the risk; keep your investments in the currency in which you have your expenditure.
- Remember the “Rome” principal. Rome wasn’t built in a day. Investments other than bank accounts often need 4 or 5 years to be given the chance to grow. As most investments don’t go up in a straight line you need to wait until an investment has its growth spurt.
- Tapas Bar (and Irish Bar) investment offers are generally damaging to your wealth. Even when a “tip” of a sure fire investment is given with genuine good intentions, the result is generally disastrous. After 22 years I have seen and heard many of these tips, from oil tanker with sails, through guaranteed property schemes, discovers of oil/Gold/Platinum/Pirates Treasure to the most amazing
internet and web based companies that are about to revolutionise the World. I am still waiting however, for the offer of a chance to buy into Richard Branson’s new space travel company (NOTE, there is an element of truth to most of the Tips you will receive. Richard Branson is considering space travel).
- Don’t try to second guess the markets. Invest when you are ready and when you have money available that you can afford to put away. “I will buy in at the bottom of the market” sounds good but how will you know when it is the bottom? Certainly take advantage of times such as now when the markets are fragile IF you have the money available. Don’t wait and try and second guess. The professional
traders can move billions in moments. Amongst professional traders/ banks etc competitive advantage is judged by one company’s computers being a millisecond quicker than a competitor. You cannot compete against that so do your own thing and simply allow enough time for your investment to work.
- Choosing your investments on the basis of last year’s charts and performance is not sensible although even some advisers do this. If you were not in that fund or market what does it matter to you? You need to look forward. What is the outlook for the coming year? What are the prospects for that asset class? By asset class we mean shares, Government bonds, Corporate Bonds, Gold, Oil, interest
rates or even currencies.
- Remember the world is changing. The prospects for countries that we have not previously considered investing in are now much better than the traditional places to invest. Europe and America will still form part of your portfolio but don’t ignore China, India, Brazil, Thailand, Malaysia, Australia, etc. Goldman Sachs have just concluded that China will be the Number 2 in the world economy in
just 12 years. Nowadays there are funds investing in all of these areas and it is very simple and straightforward.
- Tax will be a feature of your investments. You do NOT need to try and beat the system any more. With tax rates on offshore bank accounts rising to 35% (this will be withheld before you get your interest so you will have no choice) investing in Spain is now tax effective. The tax on savings is now 18% in Spain but with a little careful planning it is possible, using legal and compliant
structures, to pay as little as 3%.
This guide is intended as information only. You should seek professional advice before investing and be aware that the value of investments can go down as well as up.
Barry Davys is an independent financial adviser with 22 years experience and holds an MBA and professional qualifications in taxation and trusts and investment advice. His company The Spectrum IFA Group is regulated in Spain. For more information see Expat Financial Advice in Spain
|Barry Davys MBA Dip PFS
The Spectrum IFA Group ®
Paseo de Gracia 63 Principal 2A,
Mobile + 34 645 257 525
Fax + 34 93 636 56 11