Last time out we looked at the opportunity for short term expats. Today we move on to the long-termers. This is quite a loosely defined group, and will cover a broad section of the expat community. What we really mean by long term is:
- You are not here on a short term expat posting – or you are but it is likely to renew many times before you move on.
- You plan to leave the country you reside in at some point in the future, whether to go home, work somewhere else, or retire somewhere else.
This means you will spend a significant part of your life in your current country of residence. Let’s assume it’s Japan for clarity, but it could just as easily be Hong Kong, Singapore or elsewhere.
Once again, your number one financial planning issue is going to be base currency, and it’s quite possible you will have more than one. So you need to ask yourself what are the things you need to save for in the future, and what country are you planning on them taking place in? So if you are saving for retirement in Europe, you may have Euro as your base currency for that need. If you are planning on sending your child to college in the United States, you may have USD as your base currency for that. If you may actually end up staying in Japan forever you may need to keep some assets in JPY just in case.
My main point here is that currency risk can be a killer. I just found this interesting site that monitors national debt, and here is Japan’s debt clock. Now Japan may manage this well over the next 20 years, or it may not. What do you think will happen to the value of JPY if it doesn’t? If you are retiring in Europe, do you really want to be saving your money in JPY with a view to converting it later, when you move back?
Other than base currency, here are a few other things to consider:
- Protection – we have covered this in the protection review earlier. You should also have a plan for repatriation to your home country in case something goes wrong with your current employment and you have to leave in a hurry.
- Property – if you are going to be here for a long time then have you considered buying a property in Japan? Thanks to the developed world’s lowest interest rates, it can be very cost-effective when compared to renting. If you have the means, buying a property back home can also give you some extra income while you are away and a place to either go back to or sell to generate capital.
- Structuring – deciding where and how to hold particular investments is going to be important. You may have limited options for investing in Euros in Japan for example. It may be more tax effective to use an offshore structure or a structure back home. US citizens cannot escape worldwide taxation and need to think carefully about how to report assets. If you were to die, you probably want your assets be passed smoothly to your designated family members. Skilled advisers can add significant value here, just choose them carefully. (more on structuring in future posts)