Holistic Planning with Skybound

Building Financial Structure and Security for Expats: A Guide to Banking and Investment Decisions

A solid banking foundation serves as the cornerstone for financial stability and security. Expatriates need to understand the importance of establishing good financial structure and security to make informed investment decisions. In this article, we will explore a holistic overview of financial planning, covering the significance of correctly structured banking, the role of different accounts for expats, the benefits of offshore banking, and the strategy of dollar cost averaging in investment portfolios.

Many people view Banking, in its most basic form, as a local account to hold their cash and nothing more, however, utilising banks to establish structure and security, more than just a savings account, is necessary to establish a solid retirement plan. As we know, a bank enables day-to-day transactions and ensures liquidity through transaction and liquidity accounts and expats often hold multiple bank accounts for various purposes, but it is important to strike a balance between having too many and too few accounts. Understanding the protection and features of different bank accounts is crucial for expatriates to effectively manage their financial affairs.

For expatriates in Portugal, the first step in building financial structure is to open a local account in Portugal which will typically be a euro-denominated account. While most of their assets may still be held in their home country, a local account serves as a conduit for receiving income from local assets or employment and managing day-to-day expenses. It becomes the account where funds are received and spent on regular transactions, ensuring smooth financial operations. The account from an expats country of origin will still be held as that can be used to manage any expenses in their home country, property maintenance, bills, child support etc.

On top of the two accounts discussed, offshore banking is often recommended for expatriates. The offshore account acts as a secure repository for a portion of the expat’s savings, typically equivalent to 2-3 months’ salary. This offshore account, often tax-neutral in a jurisdiction such as Jersey or the Isle Of Man, serves as a comfort blanket, providing financial security and protection. Meanwhile, as stated above, the local account continues to handle day-to-day transactions.

Once a solid banking structure is established, expatriates can then focus on investing their funds wisely. A rule of thumb for a good strategy allocation is to allocate 20-30% for dollar cost averaging (DCA) , a good way to accumulate stack over time and reserve 70% for lump sum investments. DCA is an investment strategy where a fixed amount of money is divided into equal portions and invested at regular intervals, generally on a monthly basis, regardless of market prices. The key to maximising the benefits of DCA is to approach it with an emotionless mindset. This strategy helps mitigate the impact of market volatility on the portfolio and reduces the risk of buying at the wrong time.

Dollar cost averaging offers several advantages for investors, especially for expatriates with long-term financial goals:

Dollar cost averaging (DCA) offers several benefits for investors, including reducing the impact of market volatility on the portfolio. By spreading out investment purchases over time, DCA provides a disciplined approach that helps mitigate the negative consequences of making all investments at once. Additionally, DCA eliminates the need to time the market, as investments are made at fixed intervals, reducing the risk of buying at the wrong time. This simplicity and ease make DCA an accessible investment strategy for both beginners and seasoned investors. Furthermore, DCA is particularly effective for long-term goal planning, such as retirement, as it allows for regular investments without excessive concern over short-term market fluctuations. By providing consistent and incremental contributions, DCA supports the achievement of long-term financial objectives.

Once DCA is set up, lump sum investments can be considered. With lump sum investing the mindset is always to buy low and sell high, obviously. This is typically easier said than done. When considering options with lump sums of capital, the income it generates and Capital Gain Tax exposures must be well-thought-out. Considering the idea of how the investment/platform works (when you take benefit as a return) can be as/if not more important than getting into the market at the right time as income tax and CGT can affect the gain. Using the correct platform and tax vehicles to minimise this is crucial to boost your investment returns. There is only one entry point and one exit point, but with most lump sum investments geared up to be income generating assets, there are hundreds of payments due to be received throughout its life cycle and mitigating income tax and CGT can significantly boost the income received.

Understanding the structure and security provided by banking is crucial for personal and business success, especially for expatriates. By establishing the right mix of accounts, including a local account, offshore account, and home country account, expats can effectively navigate financial transactions. Incorporating investment strategies such as dollar cost averaging and lump-sum investments further strengthens their financial foundation. With a well-designed financial structure and an informed approach to investment decisions, expatriates can optimise their financial security, minimise risks, and pave the way for successful investment endeavours.

For more information around financial security and strategies to boost your retirement plan in Portugal, please feel free to email Kane to organise a complimentary zoom call. kane.millard@skyboundwealth.com