Today presents many challenges to preserving your wealth and seeing it grow over time. Alongside economic uncertainty surrounding Brexit, we have endured years of ultra-low interest rates and an ever-changing tax and regulatory landscape. All this makes it harder for investors to achieve returns that are not eroded by inflation and taxation.
At times like this, careful planning plays a particularly important role in securing your financial security over the long term. Here are six key tips that can help.
1. Establish a suitable strategy
When it comes to investing, one size definitely does not fit all. What will suit you depends on your specific objectives, time-frame and attitude to risk. With an ill-fitting investment portfolio, you could find that your money is not working hard enough or is difficult to access when you need it. Even worse, it could be eaten away entirely.
It is crucial that your portfolio is created and managed to meet your particular set of circumstances and goals, including your requirement for income. For example, are your investments tailored for your life in Portugal, where your expenses are mostly in euros, or are they better suited to someone living in the UK?
2. Understand your appetite for risk
Before investing, establish the right balance of risk and return for your peace of mind. Different investment assets represent varying levels of risk, from cash and fixed income assets (government and corporate bonds), to equities and ‘real assets’ like property.
It is extremely difficult to effectively assess your own tolerance for risk. Instead, speak to an experienced adviser who can ask the right questions and use appropriate tools to create a clear and objective risk profile for you. They can then recommend an appropriate blend of investments to match your profile.
Remember: without some element of risk, you may struggle to outpace inflation, especially with longer term bank deposits and todays’ low interest rates. Explore options that help control risk within your comfort zone, such as staggering the timing of riskier investments to reduce exposure to market movements.
3. Identify your timeline for investing
The longer you have to invest, the more risk you can generally afford to take. With time, you can ride out market volatility and benefit from compound returns (interest on interest, for instance). Understanding your time horizon is also the key to ensuring your investments offer the right level of ‘liquidity’. You never know when your plans may change – for example, needing to return to the UK unexpectedly for family or health reasons – so make sure you hold some liquid assets that can be sold if you need to access your capital or change your strategy.
4. Insist on diversification
The higher your concentration in one particular investment type or area – including the UK – the higher the risk. Spreading out investments across asset classes, geographic region and market sectors limits exposure to any one area. You can take diversification further by choosing an adviser who uses a ‘multi-manager’ approach to spread your investments out among several carefully-selected fund managers.
5. Incorporate effective tax planning
To help maximise real returns and protect your wealth for future generations, factor in tax planning when setting up your portfolio. Look for arrangements that can shelter capital from tax while providing a tax-efficient income, and that enable you to transfer wealth to your beneficiaries with minimal bureaucracy and inheritance taxes.
For expatriates, this is complicated by having to work with the rules of more than one country. An adviser with cross-border expertise can ensure you meet your tax liabilities, in Portugal and in the UK, while taking advantage of available opportunities.
6. Regularly review your strategy
Good financial planning is not a ‘set and forget’ exercise. Your circumstances, aims and requirements usually change over time. This may be due to moving into a different stage of life, like retirement, or following an event, such as receiving an inheritance. Or you could simply change your mind about what you want to achieve.
You should review your financial planning around once a year to keep it on track. If anything significant happens that might affect the effectiveness or suitability of your portfolio, including a change in the law or tax rules, make sure you bring this forward.
The key to bringing all these guidelines together is ensuring you take personalised, expert advice from a regulated adviser. Whether you are looking at investments, tax planning, estate planning or your pension, it is crucial that your approach is appropriate for you. With the right strategy in place for your life in Portugal, you can protect and grow your wealth – in real terms – not only during your lifetime but for the next generations to enjoy.
All advice received from Blevins Franks is personalised and provided in writing. This article, however, should not be construed as providing any personalised taxation or investment advice.
By Adrian Hook
|| features@algarveresident.com
Adrian Hook is a Partner of Blevins Franks and has been providing holistic financial planning advice to UK nationals in the Algarve since 2007. Adrian is professionally qualified, holding the Diploma for Financial Advisers.
www.blevinsfranks.com
