The Global Expatriate's Guide to Investing E-Book

Andrew Hallam

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 427

Veröffentlichungsjahr: 2014

Beschreibung

Exploit your offshore status to build a robust investment portfolio Most of the world's 200 million expats float in stormy seas. Few can contribute to their home country social programs. They're often forced to fend for themselves when they retire. The Global Expatriate's Guide to Investing is the world's only book showing expats how to build wealth overseas with index funds. Written by bestselling author, Andrew Hallam, it's a guide for everyone, no matter where they are from. Warren Buffett says you should buy index funds. Nobel prize winners agree. But dangers lurk. Financial advisors overseas can be hungry wolves. They don't play by the same set of rules. They would rather earn whopping commissions than follow solid financial principles. The Global Expatriate's Guide To Investing shows how to avoid these jokers. It explains how to find an honest financial advisor: one that invests with index funds instead of commission paying windfalls. You don't want an advisor? Fair enough. Hallam shows three cutting edge index fund strategies. He compares costs and services of different brokerages, whether in the U.S. or offshore. And he shows every nationality how to invest in the best products for them. Some people want stability. Some want strong growth. Others want a dash of both. This book also answers the following questions: How much money do I need to retire? How much should I be saving each month? What investments will give me both strong returns, and safety? The Global Expatriate's Guide To Investing also profiles real expats and their stories. It shows the mistakes and successes that they want others to learn from. It's a humorous book. And it demonstrates how you can make the best of your hard-earned money.

Leseprobe

Additional Praise for

The Global Expatriate's Guide to Investing

“This book is a must-read for expatriates or anyone thinking of becoming one. Whether you're an investor from Canada, the U.S., South America, Asia, Europe, Great Britain, Australia or New Zealand, you'll find the advice well-researched, useful, and easy to understand. Thanks to Andrew's wry sense of humor, it's surprisingly easy to digest too.”

Duncan Hood, Editor-in-Chief, MoneySense magazine

“A brilliantly written uncommon common sense guide to protecting your nest egg from both predators and yourself.”

Allan Roth, author of How a Second Grader Beat Wall Street

“Millionaire Teacher resonated with so many investors because Andrew Hallam lives what he teaches. This new book has that same credibility, and it fills a huge gap in the marketplace. Expats don't just need to overcome the usual investment hurdles: they also face an extra logistical and tax burden when building their portfolios. Hallam is the ideal guide, because he's been there, and he's already cleared the trail.”

Dan Bortolotti, Investment advisor with PWL Capital (Toronto), author Canadian Couch Potato blog

“This book is a must read by expats and their human resources departments if they hope to get on the path for a successful retirement. It covers all the bases including the egregious costs of the offshore pension schemes, country specific information on how to set up a low cost index investment approach and pitfalls expats need to avoid.”

Robert Wasilewski, RW Investment Strategies, author of DIY Investor Blog

“Employers of expatriates, whether they're businesses or international schools, should give their employees a copy of this book. Hallam's investment strategies are aligned with academic evidence, and not the sales driven rhetoric to which so many naïve investors fall victim.”

Larry Swedroe, Author of Think, Act and Invest Like Warren Buffett, principal and Director of Research for Buckingham Asset Management Alliance

“While Andrew Hallam's book is aimed at Expats, it's for anyone. It's a wonderful and breezy how-to book which will help Expats and homebodies alike to avoid the myriad financial landmines that can derail our plans. It is, of course, must-read material for anyone thinking of moving or retiring in a foreign land. One thing I love about the book is the way that Andrew gleefully eviscerates sacred cows, whether they are widely accepted dogma or powerful interest blocs. It's fun to read truth that's not wrapped in caution.”

Rob Arnott, Chairman and CEO, Research Affiliates; co-author, The Fundamental Index

“A good follow up book by Andrew Hallam, extoling the need to be self-reliant in our investing for our retirement. Andrew writes with a clear and logical thought process”

Jenny Chiam, Senior Vice President, Head of Securities—Singapore Exchange

“This is a great book for expatriates looking to grow and protect their hard-earned money. This book will help you avoid many costly and risky pitfalls with your life savings.”

Craig Rowland, co-author The Permanent Portfolio, Harry Browne's Long-Term Investment Strategy

“In the opening lines of his book The Global Expatriate's Guide to Investing, Andrew Hallam reveals that at the tender age of nineteen, “I planned how much money I wanted to save, and why.” If you gain nothing else from this book—and you will glean a great deal more—Hallam's reminder that saving is a critical part of the long-term wealth creation equation is priceless. And, the best part? Andrew will keep you laughing while you are learning–the mark of a great teacher who knows the material cold. This book is a must-read part of your investing library!”

Nancy Tengler, Author The Women's Guide to Successful Investing, investing columnist for The Arizona Republic, former Chief Executive Officer and Chief Investment Officer, Fremont Investment Advisors

The Global Expatriate's Guide to Investing

From Millionaire Teacher to Millionaire Expat

Andrew Hallam

Cover image: © iStock.com/spfoto Cover design: Wiley

Copyright © 2015 by Andrew Hallam. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Hallam, Andrew (Teacher) The global expatriate's guide to investing : from millionaire teacher to millionaire expat/Andrew Hallam. pages cm Includes bibliographical references and index. ISBN 978-1-119-02098-1 (cloth); ISBN 978-1-119-02100-1 (ebk); ISBN 978-1-119-02099-8 (ebk) 1. Finance, Personal. 2. Investments. 3. Retirement income—Planning. I. Title. HG179.H238 2015 332.6—dc23

2014030762

This book is dedicated to the millions of people who have taken the global road less traveled.

And to those who have purchased inflexible, expensive offshore pensions: May the cold calls stop ringing. And may global employers get wise to the investment foxes so many have invited into their own henhouses.

CONTENTS

Foreword

Acknowledgments

Introduction

Notes

Chapter 1: Setting Your Bull's-Eye

What's This Ailment Expatitis?

Cheating Conventional Retirement Rules

Cooking Up the Road Less Traveled

The Earthquake and the Epiphany

Jujitsu Junkie Taps Out for Home

Now It's Your Turn

Notes

Chapter 2: Building Your Pension

How to Never Run Out of Money

The Man with Nothing But a Backpack

The Couple with Swedish-American Dreams

A Front-End-Loaded Tale of Success

Notes

Chapter 3: The Truth about Stocks and Bonds

Halloween Grab Bag Treats Investors

Why Average Returns Aren't Normal

Stocks Pound Inflation

What Has the Stock Market Done for You Lately?

Undressing Stocks with 50 Shades of Gray

The Stock Market Stars as the Great Humiliator

Fast-Growing Economies Can Produce Weak Returns

Bonds Are Protective Nets for Jumpers

Can You Lose Money with Bonds?

Notes

Chapter 4: Don't Start a Fight with an Escalator

Yes, the Financial District Loves You!

Global Investors Getting Fleeced

Notes

Chapter 5: Where Are the Customers’ Yachts?

Global Investors Bleed by the Same Sword

American Expatriates Run Naked

Why Brokers Want to Muzzle Warren Buffett

Financial Advisors Touting “The World Is Flat!”

Hedge Fund Money Spanked for Its Con

Why Most Investors Underperform Their Funds

Notes

Chapter 6: Don't Climb into Bed with a Silver-Tongued Player

Featuring the Rip-Offers

The Ten Habits of Successful Financial Advisors . . . Really?

When Your Advisor Is a Sales Commando

Welcoming Sharks into the Seal Pool

Misled Investors Pay the Price

A Canadian Investor Gets Bled

Would You Like a Band-Aid for That Bleeding Gash?

Masters of the Insured Death Benefit Illusion

Free Fund Switching Isn't a Perk

Making Millions off the General Public

Fooling the Masses with Numbers

Regulators Making an Effort

Can Squeaky Wheels Gain Redemption?

If Investors Can't Reclaim Their Losses

When High Fees Meet Gunslingers

A Son's Inheritance Gets Plundered

British Teacher Learns a Costly Lesson

Playing Soccer Like Wasps around Honey

Most Investors Are Crazy

Notes

Chapter 7: Self-Appointed Gurus and Neanderthal Brains

Why Most Investors Should Hope for Falling Markets

It's Not Timing the Market That Matters; It's Time in the Market

High Unemployment and High Stock Returns

What Can You Miss by Guessing Wrong?

When Investors and Advisors Sabotage Their Rides

Popular Stocks Underperform

How About the Next Big Thing?

When Genius Fails

Notes

Chapter 8: An Employer's Greatest Challenge

Fees—How Much Is Too Much?

So What's the Solution for Global Employers?

Notes

Chapter 9: Couch Potato Investing

Don't Bonds Tie You Down?

Is It More of a Fling Than a Real Relationship?

Potatoes Growing Globally

Bonds Relative to Age and Risk

What If You're Falling Behind?

Profiting from Panic—Stock Market Crash 2008–2009

Owning the World

Where Do You Plan to Retire?

Are You Retiring in an Emerging Market Country?

Does This Sound Too Good to Be True?

Chapter 10: The Permanent Portfolio: Growth without Risk

Gold in Isolation Is a Total Loser

A Disco-Era Brainchild from a Twentieth-Century Socrates

This Great Portfolio Will Never Be Popular (But It Should Be!)

Why Does It Work?

What Has It Done for Me Lately?

Notes

Chapter 11: Fundamental Indexing: Can We Build a Better Index Portfolio?

Like Top Basketball Players Getting the Most Court Time

Index Funds That Appear to Beat the Market

Investment Legend Likens Them to Witchcraft

Global Fundamental Indexes Might Shelter Us from Bubbles

Emerging Markets Show the Greatest Difference

Aren't These Just Actively Managed Products?

Notes

Chapter 12: Capable Investment Advisors with a Conscience

Do You Have a Ninja's Discipline?

Qualities of a Great Financial Advisor

Investment Professionals worth Considering

Notes

Chapter 13: Choosing Your Offshore Brokerage—For Non-Americans

DBS Vickers Securities Opens the Door to Everyone

Why You Should Avoid E*Trade Financial

TD Direct Investing International

Saxo Capital Markets—A Jewel with Distractions

Comparing Fees with International Brokerages

Is Interactive Brokers the Dark Horse Winner?

Notes

Chapter 14: The 16 Questions Do-It-Yourself Investors Ask

Let's Go!

Notes

Chapter 15: Investing for American Expats

Do You Currently Invest with Vanguard?

Couch Potato Investing with Vanguard

Couch Potato Investing with a Vanguard Stick Shift

When Investors Binge on Speculation

Charles Schwab Offers a Great Deal

Doing the Couch Potato with Schwab

Permanent Portfolio Investing with Schwab

Fundamental Indexing Magic in the Works

Don't Contribute Illegally to Your IRA

What Exactly Is an IRA?

Roth IRAs Are Different

Notes

Chapter 16: Investing for Canadian Expats

Canadian Funds Earn an “F” for Costs

Brokerage Options for Expatriate Canadians

Brokerages for Canadians in Capital-Gains-Free Jurisdictions

Building a Canadian Couch Potato Portfolio

ETF Canadian Price War

The Permanent Portfolio, Canadian Style

Fundamental Indexing Portfolios

What About RRSPs and TFSAs?

Swap-Based ETFs, the Ultimate Legal Tax Dodge

Notes

Chapter 17: Investing for British Expats

Expensive Firms Performing Like a Virgin

Couch Potato Investing for British Expatriates

British Investors and the Permanent Portfolio

Fundamental Indexing for the British

Notes

Chapter 18: Investing for Australian Expats

Fancy an Australian Couch Potato?

How About an Australian Permanent Portfolio?

Fundamental Indexing for Australians

Notes

Chapter 19: Investing for New Zealand Expats

Kiwis Chilling Out with the Couch Potato

Permanent Portfolio for Kiwis

Fundamental Indexing for New Zealanders

Notes

Chapter 20: Investing for South African and South American Expats

South African Investors

South Africans Fry Up the Couch Potato

South African Writer Likes the Permanent Portfolio

South Africans Preferring Fundamental Platforms

South American Investors

Brazilian Investing Models

Notes

Chapter 21: Investing for European Expats

Country-Specific European ETFs

European Indexes That Investors Will Like

Why Not Choose the Simpler Option?

Calling Italians and the Swiss

The European's Permanent Portfolio

Fundamental Indexing for Europeans

So What's It Going to Be—Couch Potato, Permanent, or Fundamentally Indexed?

Notes

Chapter 22: Investing for Asian Expats

An Indian National Divulges Her Plan

Asians Embracing the Couch Potato

Asians Choosing the Permanent Portfolio

Fundamental Portfolio for Asians

Notes

Conclusion

About the Author

Index

End User License Agreement

List of Tables

Chapter 2

Table 2.1

Table 2.2

Table 2.3

Chapter 3

Table 3.1

Table 3.2

Table 3.3

Table 3.4

Chapter 4

Table 4.1

Chapter 6

Table 6.1

Table 6.2

Table 6.3

Table 6.4

Table 6.5

Table 6.6

Chapter 7

Table 7.1

Chapter 8

Table 8.1

Table 8.2

Table 8.3

Chapter 9

Table 9.1

Table 9.2

Table 9.3

Table 9.4

Chapter 10

Table 10.1

Chapter 11

Table 11.1

Chapter 12

Table 12.1

Table 12.2

Table 12.3

Chapter 13

Table 13.1

Table 13.2

Table 13.3

Table 13.4

Chapter 14

Table 14.1

Table 14.2

Chapter 15

Table 15.1

Table 15.2

Table 15.3

Table 15.4

Table 15.5

Table 15.6

Table 15.7

Chapter 16

Table 16.1

Table 16.2

Table 16.3

Table 16.4

Table 16.5

Table 16.6

Table 16.7

Table 16.8

Table 16.9

Table 16.10

Chapter 17

Table 17.1

Table 17.2

Table 17.3

Table 17.4

Table 17.5

Table 17.6

Table 17.7

Table 17.8

Chapter 18

Table 18.1

Table 18.2

Table 18.3

Table 18.4

Table 18.5

Table 18.6

Chapter 19

Table 19.1

Table 19.2

Table 19.3

Chapter 20

Table 20.1

Table 20.2

Table 20.3

Table 20.4

Table 20.5

Table 20.6

Table 20.7

Table 20.8

Table 20.9

Chapter 21

Table 21.1

Table 21.2

Table 21.3

Table 21.4

Table 21.5

Table 21.6

Table 21.7

Table 21.8

Table 21.9

Table 21.10

Chapter 22

Table 22.1

Table 22.2

Table 22.3

Table 22.4

Table 22.5

Table 22.6

Table 22.7

Table 22.8

List of Illustrations

Chapter 1

Figure 1.1 Shane Brierly's Postinflation Adjustment

Figure 1.2 Ben and Chiho's Postinflation Adjustment

Figure 1.3 Jeff and Nanette's Postinflation Adjustment

Figure 1.4 Your Postinflation Adjustment

Chapter 2

Figure 2.1 Determining How Much Lindell and Yan Need to Save

Figure 2.2 Calculating Annual Return Required for Keith and Annika to Reach Their Goal

Figure 2.3 Jeff and Cheryl May Not Need to Invest Anything Else to Reach Their Retirement Goal

Chapter 3

Figure 3.1 Vanguard's S&P 500 Index Performance: $10,000 Invested in September 1976 Grew to $487,321 by 2014

Figure 3.2 Bonds Are More Stable Than Stocks

Chapter 4

Illustration by Chad Crowe: Printed with permission.

Chapter 5

Figure 5.1 Hedge Fund Returns versus 60 Percent Stock Index/40 Percent Bond Index

Figure 5.2 How Many Top 100 Funds Remain in the Top 100 the Following Year?

Figure 5.3 U.S. Stock and Bond Market Returns versus Investor Returns, 1990–2010

Figure 5.4 Financial Advisors Can't Predict the Future

Chapter 6

Figure 6.1 Irresponsible Investment Allocations

Figure 6.2 U.S. Stock and Bond Market Returns versus the Average American Investor, 1990–2010

Chapter 10

Figure 10.1 Permanent Portfolio Performance, 1971–2011.

Chapter 12

Figure 12.1 Percentage of Market Returns Earned by Actively Managed Mutual Fund and Index Investors, with and without Advisors.

Chapter 14

Figure 14.1 iShares S&P/TSX Capped Composite Index at Yahoo! Finance

Figure 14.2 Purchasing 370 Shares of Vanguard's International Developed World Index

Figure 14.3 Purchase Using TD International's Brokerage in Luxembourg

Figure 14.4 Purchase Using Saxo Capital Markets

Guide

Cover

Table of Contents

Chapter 1

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Foreword

Scott Burns

Investing: Now Anyone Can Do It, Anywhere

Some people like investing. Most people don't. They would rather do something else. Almost anything else, in fact. People clean their ovens, sweep the garage and clean out old files to avoid it. Others will fold socks, return used printer cartridges or visit their in-laws. They will do all this to avoid thinking about saving and investing.

That's just the way it is.

But Andrew Hallam has opened a door. Here, people who don't like investing can mix with people who do. And both can benefit. The people who like investing can benefit: These pages are a passport to investing anywhere in the world. Here, you can learn to be a free agent, in charge of your life, now and later.

The people who don't like investing can benefit because this book is an easy read. It tells you how to invest at the lowest possible cost. The result is more money growing for you. The book does the telling in step-by-step detail. And when it has a calculation, which is rare, it shows you how. Wherever you are from, and wherever you are, the Millionaire Teacher tells you how to invest your savings. He does this using a variety of funds, all focused on low costs, simplicity and diversification. And, yes, there can be a “tilt” toward where you expect your retirement home base to be.

Absolutely, positively don't want to do this on your own? Not to worry. Andrew introduces you to some low cost investment managers. These firms will build and track your portfolio at a fraction of conventional costs. Better still, the number and variety of these firms is growing.

So if you are an expat, working or living in a country that isn't the same as your native country, this is your cornerstone book.

If the mere mention of a calculation makes you nervous, don't worry. Andrew is a teacher, a good one. He assumes you know nothing and takes you through it step-by-step. Making it simple is important because the best way to achieve your goals is by being a low cost do-it-yourself investor.

Here's why. Most people worry about the taxman and the damage taxes can do to their savings. But the person likely to do the most damage is the one who wants to sell you an investment program. The offer is that your sage advisor will make brilliant and wise investment decisions for you.

Sorry, this doesn't happen. Instead, your money helps a salesperson make a pressing Mercedes payment. It may also help his boss buy a house in Aspen or the Hamptons.

The damage that person does isn't obvious. The financial services industry does its best to disguise the burden of its “customary and normal” fees. The problem starts with how financial expenses are expressed. Universally, they state expenses as a percent of assets managed. So if we commit $1,000 and the expenses are one percent, it's only $10 a year.

It's hard to complain about that, right?

But the functional burden is much larger. You have to measure by what counts: the actual return on your money. Managing your investment costs for a “modest” 1 percent of assets is one thing. But if the gross return on your money is 8 percent, the manager is taking 12.5 percent of your return. Raise the fees to 3 percent of assets and the manager's take is 37.5 percent of your return. Yet charges of 3 percent of assets are common in most of the world outside of the United States.

That's more than the taxman takes from most people. We have also made the benign assumption that the manager will actually deliver such a return. Most don't. As a multitude of research studies have shown, about 70 percent of all managed money fails to beat its appointed index.

But even that measure understates the true burden people saving for their retirements face. In the Journal of Portfolio Management industry guru Charles Ellis tells us the truth.1 An “informed realist,” he says, would measure the cost of active management as “the incremental fee as a percentage of incremental returns.”

Sorry about that.

Here's his example, in plain arithmetic. Suppose you buy a managed fund that has expenses of 1.5 percent a year. Suppose it outperforms its benchmark index by 0.5 percent a year. Since the manager had to outperform the index by 2.0 percent to deliver the extra 0.5 percent, the true cost of management takes 75 percent of the gain. You won't find many taxmen, anywhere on the planet extracting that big a toll. But money managers around the world do it routinely.

Indeed, a management expense of 1.5 percent is low in most of the world outside of the United States. Check the examples provided in these pages. You'll see that expat investors often encounter fee levels of 3 percent and more.

Brokerage houses, insurance companies and banks would love to continue taking their gigantic fees. But the world has changed around them. Where once they were the only ways to distribute investment funds, today they are just the most expensive ways to invest.

Today, we have alternatives. The new institutions have fees so low that it can be 20 years, sometimes more, before their costs exceed what the old guard institutions collect in a single year. Today it is possible to put together a well-diversified global portfolio and do it for well under 0.20 percent a year.

When I introduced the first Couch Potato portfolio in 1991 index mutual funds were in their infancy. There were a handful of low-cost index funds in the United States. Of necessity the original portfolio was dirt simple: a 50/50 mix of US large stocks and US bonds. That simple solution has served thousands of people very well.

Today there are thousands of Exchange Traded Funds providing low-cost choices. And they are available almost anywhere in the world. So you can do this wherever you are, tailored to wherever you are or wherever you go.

The good news doesn't end there. Intense competition among the lower-cost distribution companies has eliminated commissions on many ETF purchases. It has also brought down annual expenses on many of the most important index funds to own. At long last, next to nothing stands between you and the return on your money. This is a buyer's market.

And Andrew Hallam is here to guide you.

—Scott Burns

Note

1

Charles D. Ellis, “The Rise and Fall of Performance Investing,” Journal of Portfolio Management, July/August 2014

Acknowledgments

No book on low-cost investing should be written without a nod to John Bogle. Referred to by many as Saint Jack, he created the first low-cost index fund. The firm he founded, Vanguard, is now the largest mutual fund provider in the world. What's especially cool is that he didn't profit from its growth. Run much like a nonprofit firm, it's testimony to altruistic goodness gone positively viral.

I hope this book does justice to his low-cost, diversified mantra for investors.

I would also like to acknowledge investment writers Ian McGugan and Scott Burns. They're the best personal finance writers I know. And they continue to coach my writing. If this book reads clearly, with a dash of humor, it's largely thanks to them.

The expats profiled within these pages also deserve my heartfelt thanks. You let me pry into the good, bad, and ugly aspects of your personal financial lives. And this book is far more instructive (and, I hope, entertaining) because of your generosity.

Saintly financial advisor Tony Noto also helped greatly with my section on American individual retirement accounts (IRAs). I'm not sure if your clients know, Tony, how fortunate they truly are.

My agent, Sam Fleishman (the man who appears never to sleep) worked tirelessly to ensure I was given a strong publishing contract. Thank you, Sam. Now get to bed.

Finally, to my lovely wife Pele: You tolerated my mission, working as my editor and time manager—pulling me away from the manuscript when life needed living.

Introduction

On U.S. television, when law enforcement closes in on a white-collar heister, the fugitive often flees to a foreign country. He might steal a yacht headed for the Dominican Republic or fly a Learjet to the Caymans.

The 67 percent of Americans without passports might gasp at the ballsy border-bounding foolishness.1 Doesn't the crook realize that by leaving the country, he risks being buried in an Afghan cave by Al Qaeda?

Smile if you're among the world's 230 million expatriates.2 Such risks aren't likely. One genuine pitfall for expats, however, could be poverty in retirement.

Many on cushy foreign packages may scoff at my suggestion. After all, there's a large league of expats in Southeast Asia and the Middle East for which international living and working provide a fast track to Millionairesville. Teaching at international schools are couples with children, for instance, saving more than $100,000 (U.S. dollars) a year.

And the parents of the kids they teach? Most make the teachers seem like paupers by comparison. They left their home countries to work abroad in industries such as banking, information technology, oil, cosmetics, pharmaceuticals, and shipping. Many work for firms like Coca-Cola, American Express, Johnson & Johnson, Google, Microsoft, Exxon Mobil—the list goes on.

But not all expats (including millions in Europe) make buckets of money. And even those who do face financial risks.

In 2003, when I left Canada to teach in Singapore, I kissed good-bye to a defined benefit pension. Had I continued with my former job, I could have paid off a home, contributed modestly to investments, and received income for life.

Few expats have that luxury. What's worse, most don't realize they would need millions of dollars in the stock market or multiple mortgage-free rental properties just to equal, for example, the retirement benefits earned by most public-sector workers in Great Britain, Australia, or Canada.

Such benefits are globally waning. But they're still a reality, and most governments offer additional monthly cash. Social Security (for Americans), Canadian Pension Plan (for Canadians), and their equivalents for Brits, Australians, Germans, New Zealanders, and others provide income for non-expatriates. But without maximizing contributions to these plans, we can't fully open mouths to such morsels.

Most countries determine payments based on the amount of income employees earned coupled by the numbers of years they contributed to their home countries' respective social plans. Maximum Social Security payments for Americans, for example, exceeded $28,000 a year in 2012.3 Expats seeking such income from an insurance company would have to invest nearly half a million dollars in an annuity. Those retiring in 10 or 20 years would need a lot more. Inflation is greedy.

Other countries also pay cash benefits to contributors of their respective social systems. Here's a snapshot.

Maximum Annual State Pension Payouts per Country

Maximum Annual State

Maximum Annual State

Country

Pension (Country Currency)

Pension (U.S. Dollars)

Germany

30,651 (euros)

39,374

United States

28,159 (U.S. dollars)

28,159

France

18,380 (euros)

23,612

Brazil

50,734 (Brazilian reals)

22,354

Australia

20,694 (Australian dollars)

18,862

Canada

12,295 (Canadian dollars)

11,704

United Kingdom

7,488 (British pounds)

11,174

Currencies converted: July 7, 2013.

SOURCE: Complementary and Private Pensions Database, “Private Pensions—OECD.” Accessed April 29, 2014. www.oecd.org/finance/private-pensions/issaiopsoecdcomplementaryandprivatepensionsdatabase.htm.

Departing your homeland for a long-term contract or overseas adventure can leave you hungry—especially if your adopted country doesn't offer pensionable benefits. As a result, most expats need to save more and invest more effectively than their home-based contemporaries do.

Not all geriatric globe-trotters, however, get forced to a street corner with a busker's banjo. According to HSBC Bank's International Expat Explorer Survey, 68 percent of expats report saving more money than they could in their home countries.4 So there's hope for prosperity.

But hope on its own is a lousy strategy. You need a plan. Start by asking the following questions:

How much money will I need to retire?

How much should I be saving and investing each month?

How am I going to invest?

This book provides a game plan to answer such questions, whether you're aspiring to keep up with the Kardashians or live like a Buddhist monk.

One method to create or augment future retirement income is through the stock and bond markets. But many expats get rooked. Silver-tongued investment salespeople peddle dodgy products. Expats are easy targets.

Offshore investment schemes are often slippery pitfalls, rewarding financial advisors with massive commissions, hemorrhaging their clients' profits through high hidden fees and kickbacks. Many expat advisors sell them exclusively, locking unwary folks into 10-, 20-, even 25-year schemes.

Once an investor catches on to the fee-burdened riptide, it's often too late. Those scrambling out of the water face redemption penalties up to 80 percent of their accounts' proceeds. What's worse, many overseas employers welcome financial sharks into their company seal pools. With the best of intentions, they endorse offshore pension sellers, most of whom have a single purpose: reaping the highest possible commissions from unwary workers.

Whether you find a scrupulous financial advisor or manage your own investments, you should understand how the stock and bond markets work. I'll describe how money is made in the markets, answering many of the questions you may have been too embarrassed to ask. The stock market, you'll learn, represents a collection of real businesses. Investing in them doesn't have to be risky, time-consuming, or complicated—if you do it right.

I'll show how to spend just 90 minutes a year on your investments, while thumping the performance of most professional money managers. Best of all, you won't have to watch the stock market, follow the economy, or read the dull financial pages of the Wall Street Journal.

Sound too good to be true? It isn't. Use the Internet while reading this book. Doing so will allow you to verify my warnings about specific investment products. You'll find mountains of academic support for this book's investment strategies.

If you've invested poorly in the past, you have plenty of company. Dan Weil, writing for Moneynews.com, reported that a 20-year study by Chicago-based Dalbar proves most investors are like drowning ducks. While the average U.S. stock earned 384 percent (8.21 percent annually) between 1992 and 2012, the average American investor earned just 130 percent (4.25 percent annually) on stock market investments.5

Such poor investment performance might make the difference between eating cat food and caviar during retirement. I'll guide you toward something palatable.

Once you're armed with investment history and theory, the book's next sections get more specific. I'll show where you can open your investment account, while describing how to make your investment purchases.

As easy, however, as this investment strategy is, some people may still prefer an advisor. I profile some well-trained, ethical guides. Once you understand their philosophy, you'll know what to look for when picking an advisor.

Many people are also concerned with the practicalities of repatriating financial assets. Although this book doesn't cover such concepts, I continue to add articles and useful links pertaining to this subject for those of different nationalities at www.andrewhallam.com.

As an expatriate, you can live better, earn more, and provide for a generous retirement. But you'll need a plan. Fortunately, you're reading it.

Notes

1

Andrew Bender, “Record Number of Americans Now Hold Passports,”

Forbes

, January 30, 2012. Accessed April 29, 2014.

www.forbes.com/sites/andrewbender/2012/01/30/record-number-of-americans-now-hold-passports/

.

2

“World Expat Population—The Numbers,” Resources for Expats, International Moving Companies Moving Overseas, World Expat Population—The Numbers, Comments. Accessed April 29, 2014.

www.feedbacq.com/blog/world-expat-population-the-numbers/

.

3

“Private Pensions—OECD.” Accessed April 29, 2014.

www.oecd.org/finance/private-pensions/issaiopsoecdcomplementaryandprivatepensionsdatabase.htm

.

4

“HSBC Bank International Expat Explorer Survey.” Accessed April 29, 2014.

www.expatexplorer.hsbc.com/files/pdfs/overall-reports/2009/economics.pdf

.

5

Dan Weil, “Dalbar's Harvey: Individual Investors Brilliant at Mistiming Markets,” Moneynews.com, March 11, 2013. Accessed May 12, 2014.

www.moneynews.com/InvestingAnalysis/Dalbar-Harvey-individual-investors/2013/03/11/id/494045/

.

Chapter 1Setting Your Bull's-Eye

When I first started investing, I wanted to retire at 40. I was 19 years old and saving like a lunatic. I won't confess the screwy things I did to pinch pennies. Instead, I want to share what I did right: the part you'll find helpful. I planned how much money I wanted to save, and why. Such planning, even more than the hyperactive saving, made my life a heck of a lot easier.

In 2014, shortly after my 44th birthday, my wife and I retired from our Singapore-based teaching jobs. That doesn't mean we live like trust-funded hedonists. Nor does it mean we'll never work again. It does mean, however, that our private parts aren't sitting in somebody else's vise. A few years back, if our boss had gone on a firing spree, sacking skinny bald guys and bilingual blondes, we would have been fine. We had enough money to survive without working.

When you're financially free, you might choose to keep working, take a long-term leave, or retire. Financial freedom provides options.

If you're not financially free today, set a target.

Begin with the following question:

If you were retired today, how much do you think you would spend each year?

For now, ignore inflation. Everything from a back wax to cornflakes will cost more in the future. But we'll make adjustments for that later. Just consider how much you would need annually if you retired today. It's silly to suggest a specific number of dollars needed by every retiree. If you're retiring in London, England, for example, costs will be higher than in Chiang Mai, Thailand.

Big spenders also require more. Five-star holiday junkies have pricier tastes than those who reserve luxury for special occasions. Some experts suggest you should budget retirement expenses totaling 70 to 80 percent of your working household income. But such cookie-cutter solutions make little sense. Even among those in the same income bracket, some people consume like gas-guzzling Mack trucks; others sip like a Smart car. Your future expenses depend on your personal needs, wants, and chosen retirement location.

To estimate future costs of living, figure out what you're spending right now. Record every penny you spend for at least six months. It's easy to do with an app on your phone, or with a pencil and notebook. Then make adjustments for predicted retirement lifestyle changes. Without a job, you won't be maintaining a professional wardrobe. Nor will you be saving for your kids’ college or your retirement. Do you plan to be somewhere cheaper or more expensive than where you currently live? In either case, make adjustments. Costs of living in the world's major cities are available at www.numbeo.com.

This isn't about keeping up with Mr. and Mrs. Jones. But if you want to know how much the typical (non-expat) retired household spends, here's a peek.

According to the University of Michigan's Health and Retirement Study, total costs for the typical American retired household were $31,365 in 2012.1

Canadian Business magazine reported that on average a Canadian retiree spent $39,400 (Canadian dollars) in 2009.2

MGM Advantage estimates that British retirement expenses averaged £23,107 per year in 2013.3

Australian households, according to the ASFA Retirement Standard Benchmark, need $32,603 (Australian dollars) for a “modest” retirement.4

Your needs depend on you: your lifestyle, your retirement location, and your financial obligations. Unfortunately, those afflicted by expatitis crave more than the average Dick or Jane.

What's This Ailment Expatitis?

Expatitis isn't a common medical term. But if you're an expatriate, chances are either you or someone you know is infected. It's easily diagnosed. Symptoms get posted on Facebook. Fortunately, it doesn't hurt—at least not in its early stages.

Unlike bronchitis, arthritis, appendicitis, or colitis, expatitis is rather pleasant. Afflicted individuals get addicted to five-star holidays, manicures, pedicures, massages, expensive dining, and entertainment. But expatitis creates delusions. It's much like drinking champagne underwater without checking your air supply.

Symptoms creep up. The better the expat's financial package, the greater the risk of contracting the condition.

I’ve been giving financial seminars to expatriates for a decade. When I ask people to estimate their retirement expenses, their needs vary. And I expect that. But here's the irony. Those reporting they need the most money are usually saving the least.

Fortunately, such spendthrifts can eke out the final laugh.

Whether you're suffering from expatitis or hoping for a more luxurious retirement than you could afford in your home country, retiring overseas offers a creative solution.

Cheating Conventional Retirement Rules

Meet Billy and Akaisha Kaderli. They live better than the typical American retiree. But they also spend less.

If you struck up a midweek conversation with them, you might peg them as early retirees. The energetic 61-year-olds share the glow of a couple freed from the rat race. But a few things make them different. They spend long-term stints (sometimes years) in low-cost countries. They also retired when they were just 38, and will mark their 25th year of retirement in 2016.

Previously, they owned a restaurant in the United States. Akaisha ran it. Billy worked at an investment firm. But in 1991, they quit. While most of their friends were acquiring large houses, new cars, and filling their homes with fine furnishings, the Kaderlis downsized. “We sold most of our possessions,” says Akaisha, “including our house and our car.” For a quarter of a century, they've lived off their investment portfolio. Today, it's worth more than it was the day they retired.

To stretch their income, they moved to Lake Chapala, Mexico. But they enjoy bouncing around, renting homes in new locations for months at a time. Some of their favorite hubs include Thailand and Guatemala. They commit to community projects, meeting people, embracing different cultures, and learning different languages. They have a mortgage-free apartment in the United States, where they stay when they visit family.

The Kaderlis have also discovered how to bask in luxury on a shoestring. Through TrustedHousesitters.com, they found a luxurious home overlooking Lake Chapala in 2013. They stayed four months without paying rent. “We may do more of that in the future,” says Akaisha, “if the right opportunity arises.”

Their living costs may be low, but the Kaderlis don't scrimp. “We have a great deal of fun,” Akaisha says, “living on $30,000 a year.” In 2013, they spent roughly $3,900 on housing, $5,400 on transportation, $6,600 on food and entertainment, $6,900 on medical expenses, and the rest on miscellaneous costs.5

The Kaderlis are the authors of The Adventurer's Guide to Early Retirement (CD-ROM, 2005). They also maintain a helpful blog, Retire Early Lifestyle, at www.retireearlylifestyle.com, where they share their stories and tips for living well on less.

Suzan Haskins and Dan Prescher, authors of The International Living Guide to Retiring Overseas on a Budget (John Wiley & Sons, 2014), live much like the Kaderlis. Located in a small town in Ecuador, they spend roughly $25,000 a year. “We live well. . . . We go out to lunch and dinner once a week . . . we enjoy the occasional martini or scotch, and every evening with dinner we polish off a bottle of wine.” Their costs include at least one annual trip to the United States, occasional fine dining, and a worldwide health care policy that costs roughly $5,800 a year, with a $5,000 deductible.6

Cooking Up the Road Less Traveled

Forty-eight-year-old chef Shane Brierly desires a more upscale retirement than he could afford in his home country. The New Zealand native left Australia in 2004 to work in Dubai. He explains, “I thought it would give me an edge, giving me a more comfortable financial position than previously.”

But instead of moving back to Australia, Shane moved to Vietnam, where he works as a chef at the Pullman Hotel in Ho Chi Minh City. Now he's planning to retire overseas. “The respect and community values in Asia really inspire me,” says Shane. “Not so many criminals, a culture of nonviolence and respect, plus awesome food.

“Costs of living are also lower,” he adds, “and these countries are far less materialistic.” Shane's views on materialism were altered by misfortune. “But it was a blessing in disguise,” he says.

A shipping company lost all of his household goods when he moved from Dubai to Vietnam. Initially forced to live with less, he warmed to its simplicity. “Owning a whole lot of stuff means maintaining, repairing, replacing, or running it.” He no longer buys what he doesn't need, preferring to spend his money on traveling instead. Gaining experiences, Shane explains, is more fulfilling than acquiring possessions. “The Western economy runs on unneeded goods and services, and everyone lives to consume. You need half your income just to sustain impulse buys and comfort purchases. The rest disappears on essentials and tax.”

Shane doesn't live like a monk. He lives simply, but doesn't mind paying a premium for quality. In a country where you can survive on a relative shoestring, he claims you can live well on $3,000 per month ($36,000 annually). “I love exploring. It's inexpensive to travel locally in Southeast Asia or in Vietnam, and you can splash out quite affordably and have a comfortable life.” He plans to retire in central Vietnam, Laos, Cambodia, or Chile. But he'll be keeping his hands in the hospitality business. “I’ll probably set up a restaurant or guesthouse to run. To be financially free at 60 would rock, but retiring at age 65 is more likely.”7

If Shane wants to retire with an income of $36,000 a year, he'll need to make adjustments. Inflation is greedy, sometimes frighteningly so.

Inflation.eu compiles country inflation figures. In 1981, Canada's inflation rate recorded 12.12 percent; in 1975 Great Britain's peaked at 24.89 percent; and in 1979 the cost of living in the United States rose 13.29 percent.8 Those lamenting the good old days of the late 1970s and early 1980s, when savings accounts paid 10 percent a year, may have forgotten inflation's gluttony.

Lately, inflation's appetite has slowed. The decade ending 2012 saw Canada's annual inflation average 1.83 percent, Great Britain recorded 2.64 percent, and the United States averaged 2.41 percent per year.9

But past decade levels are rarely repeated in the future. Caution is prudent. In this case, let's assume inflation will average 3.5 percent each year—which is slightly higher than the developed world's 100-year average.

Shane plans to retire in 17 years, when he turns 65. If inflation averages 3.5 percent, he'll spend $64,608 annually 17 years from now to give himself and his wife the same buying power that $36,000 would provide today. In other words, if $36,000 can buy a certain number of goods and services now, it would require $64,608 to purchase those same goods and services in 17 years.

To make the postinflation adjustment, Shane went to www.moneychimp.com and clicked Calculator. Figure 1.1 shows how he used the website to estimate his postinflation income equivalency.

Figure 1.1 Shane Brierly's Postinflation Adjustment

SOURCE: www.moneychimp.com.

The Earthquake and the Epiphany

When figuring out how much money you'll need, focus on your own lifestyle and needs, not somebody else's. Thirty-five-year-old Ben Shearon, a British professor living in Sendai, Japan, shares his retirement expense projections.

He and his wife, Chiho, lost their home to the Japanese earthquake in 2011. “That turned me into a pretty hardcore minimalist,” Ben says. “I have seen how fragile life can be.” The experience strengthened his desire for earlier financial freedom. Rather than working, he'd rather travel, read, keep fit, and spend time with his wife.

Ben and Chiho seek financial freedom when Ben turns 45. They save 50 percent of their household income, now that their three children are “mostly grown up and more or less independent.” Ben hopes that he and Chiho can live off dividend and interest income from their stock and bond market portfolio. They're considering retiring in Malaysia or Thailand where the weather is better and the costs of living lower.

Working full-time as a teacher trainer at a university in Sendai, Ben also consults on English as a foreign language (EFL) textbooks and writes a blog. Chiho runs a small private school, which also absorbs a lot of Ben's time. “Right now it's all work, work, work, but we are hoping to gradually scale that back as we hire more people to help us with the school.”10

Currently, they don't own property.

Ben and Chiho estimate their annual retirement costs at $47,100 (U.S. dollars). Because they're hoping to retire in 10 years, this sum will need to be adjusted for inflation. If inflation averages 3.5 percent, they'll require $66,439 each year (a decade from now) to give them the equivalent buying power of $47,100 today.

Figure 1.2 illustrates how their numbers look when plugged into the compound interest calculator at www.moneychimp.com.

Figure 1.2 Ben and Chiho's Postinflation Adjustment

SOURCE: www.moneychimp.com.

Jujitsu Junkie Taps Out for Home

Despite his 44 years, school psychologist Jeff Devens strikes an imposing figure against younger fighters on the jujitsu mat. A wrestler in college, he took a break from grappling until he was 40, when the Brazilian jujitsu bug bit him. Today, he battles opponents half his age. But that doesn't mean the Singapore-based American lives in a youthful Neverland. Jeff and his wife Nanette know the years creep up. Consequently, they are prepared for their retirement. They plan to be based in the United States.

The typical American retiree spent $31,365 in 2012. But Jeff and Nanette don't want to be average. By sidestepping expatitis, the Devenses are realistically poised to retire on $93,300 per year.

They started their expat careers in 1995, teaching at the International School of Beijing, China. “We came overseas after two years of marriage,” says Jeff, “with $25,000 of student loan debt. During our first year, we paid off our school loans and had enough money left over to put a down payment on a home in North Dakota.”

Jeff and Nanette are now mortgage free. Each June, they fly from Singapore to the United States to spend time at their lakeside home with their two children. “Purchasing the house was a lifestyle decision,” says Jeff. “It gives our family a place to spend seven weeks each summer. Paying off the mortgage also gave us peace of mind.”

The Devenses figure they'll spend most of their retirement time in North Dakota. “When we get closer to retirement, we'll likely buy or rent a second home in a warmer climate, giving us an escape from North Dakota's winter months.”

After researching medical insurance, Jeff realized it will cost them much more than it will for most stateside Americans. “We would have a high deductible because we haven't had enough years vested in any stateside school district, nor have we paid enough into Social Security to qualify for Medicare.”11

Americans are required to pay 10 years or 40 quarters in Medicare taxes to qualify.12 Career expatriates, like the Devenses, will pay higher insurance premiums if they can't accumulate the minimum requirements toward Social Security while living overseas.