Portfolio Makeover: How Expats Can Boost Returns by Reducing Fees, Decreasing Risk, and Lowering TaxesSubmitted by Creveling & Creveling Private Wealth Advisory on October 1st, 2019
By Chad Creveling, CFA, and Peggy Creveling, CFA
Creveling & Creveling is required by law to protect clients’ privacy, and does not release client information to third parties without written approval. The following is a fictitious example designed to demonstrate the value of proper financial planning, and does not refer to any specific case.
Steve and Denise are a Canadian couple who have been working in Southeast Asia for the past seven years. Steve works in the oil industry, while Denise works part-time for a local charity. They enjoy the expat lifestyle with their three children and plan to remain outside their home country for an extended time. They’ve worked hard and have managed to save USD 600,000.
After several years of disagreement and trying to manage their investments on their own, they decide to seek help. They want to invest in the offshore markets to avoid paying taxes in Canada while working overseas. They also want to be sure they have a portfolio that is going to help them achieve their financial goals.
As they seek help, they’re trying to decide:
- The best place (jurisdiction) to hold their investments
- Whether to use one of the global banks, a brokerage firm, an offshore “pension,” or some combination of these options
- Whether they should be using one or multiple accounts and advisors
- Which of the thousands of possible investments they should use in their portfolio
- Which currencies they should invest in
Steve and Denise aren’t sure where to start. They feel like they don’t have the time, knowledge, or experience to do all this effectively. Below is a framework for them to work through the steps needed to pull it all together—including risk assessment, research and analysis, and development of options to make informed decisions going forward.
First, Steve and Denise should begin by discussing their future financial and lifestyle goals, their current financial and tax situation, and the unique aspects of their situation. Time should be spent discussing their attitudes toward and experience with investing, along with making an honest assessment of their abilities to bear risk in their portfolio, including their tolerance for short-term market volatility.
After a detailed analysis of their accounts and portfolio, they find:
- Their funds are scattered across seven different brokerage and bank accounts in Canada, Thailand, and the offshore centers of the Isle of Man and Guernsey. Only a few of their accounts are accessible online. The rest deliver statements by mail, some of which are being collected by family in Canada.
- The portfolio they have may be too risky for their situation. Equity exposure is in excess of 80%, and they have a 20% direct weighting to emerging markets along with a 30% weighting to Canada. This may result in a significant amount of short-term volatility when markets are rocky.
- There is little diversification in the portfolio, and they are using only a fraction of the available global asset classes to achieve their goals.
- Most of the investments are in two offshore “pension” schemes and have fees of nearly 5%. As a result, total fees on the overall portfolio exceed 3%.
- There is excessive redundancy in investments across their various bank and brokerage accounts.
- Due to the complexity of all the accounts and the portfolio, they have been unable to keep track of their investments and have no way of telling whether they are achieving their goals. This has contributed to some of the disagreement between Steve and Denise.
- Consolidate financial accounts to ease management, close unneeded accounts, and set up online access for all accounts.
- Set up the main investment account with a well-regulated discount brokerage in one of the offshore jurisdictions to avoid both Canadian and Thai tax.
- Develop a properly diversified portfolio from all available global asset classes and constructed from cost-effective exchange-traded funds and no-load mutual funds.
- Reduce equity exposure to 60% and exposure to other volatile asset classes to less than 5% to better match their overall risk tolerance.
- Add new asset classes that serve to enhance the risk-reward profile of their portfolio.
- Develop an Investment Policy Statement to lay out specific goals for the portfolio to include expected long-run return, the amount of risk, expected savings and withdrawals, tax considerations, and how the portfolio should be managed over time.
- Track the performance of the portfolio over time and rebalance as needed.
As a result of these moves, Steve and Denise are now positioned to achieve the following:
- Reduce portfolio volatility (risk) without sacrificing the long-run expected returns on the portfolio. This also lowers the number of down years they can expect from the portfolio as well as the magnitude of those years.
- Reduce portfolio fees from over 3.0% per year to 0.25%. This results in savings of over USD 16,500 per year on their USD 600,000 portfolio.
- The increased portfolio diversification, lower volatility, lower fees, and improved risk-reward profile of their investments will improve their chances of achieving their financial goals.
- Each quarter they agree to review their investments, adding additional savings when available and rebalancing as needed.
- No matter where their expat life leads, they can manage the portfolio from the same platform.
- They are able to simplify and take control of their financial life.
These moves and other financial planning measures allow Steve and Denise to stop worrying about being able to retire and second-guessing their investment decisions and instead focus on the more enjoyable parts of expat life.
This article is a revised and updated version of one that appeared previously on www.crevelingandcreveling.com.
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About Creveling & Creveling Private Wealth Advisory
Creveling & Creveling is a private wealth advisory firm specializing in helping expatriates living in Thailand and throughout Southeast Asia build and preserve their wealth. The firm is a Registered Investment Adviser with the U.S. SEC and is licensed and regulated by the Thai SEC. Through a unique, integrated consulting approach, Creveling & Creveling is dedicated to helping clients cut through the financial intricacies of expat life, make better decisions with their money, and take the steps necessary to provide a more secure future.
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