Are you looking for a Low-Cost Investment Portfolio as a US Expat living abroad? As an expat you might be wondering if there are low-cost investments available to you while living abroad.

In this article, we will focus on investments inside a qualified plan since most American expats living overseas still have 401K, IRA, or other pension plans. We will explore the options available for expats and compare them.

What is a Low-Cost Investment?

The most common way you can invest your funds inside a US retirement account is by owning ETFs or Mutual Funds. The ETF which stands for Exchange Traded Funds is a passive investment that is usually tracking an index.

As the name implies it trades on an Exchange which means it can be purchased in real-time during market hours. ETFs being passive don’t need to pay a large fee to a money manager. Many ETFs expense ratios from firms like Vanguard or ISHARE will be between 0.05 to 0.25%. In comparison, Mutual Funds expense ratios are usually between 0.5% to 1.5%.

ETF or Mutual Funds?

There can be a balanced approach regarding the use of ETFs and Mutual Funds. It is important to do a thorough screening and research to find the best manager for a reasonable cost. Then it is possible to use both ETFs and Mutual Funds inside the same portfolio while keeping costs low. It also depends on the life cycle of the economy.

In a more turbulent time it might be good to add a little bit more active management to the portfolio and then when market expectations are better and clear then overweighing ETFs would be beneficial.

Benefits of an ETF

• Intraday pricing
• Traded on an exchange
• Low cost
• Diversified
• Tracks an index
• Tax efficient in a non-qualified account
• Possible niche exposure in Specific Industries ETFs

When to use Mutual Funds

There is a place for mutual funds in a portfolio as long as you are willing to pay a little bit more for active management. Mutual funds tend to outperform ETFs in downside markets.

This is because the ETFs are only tracking an index but the Mutual Funds are actively managed and some managers are able to make tactical changes to their portfolios in times of uncertainty.

Investment platforms available for US expats

There are a few Investment platforms available for US expats. This is because most investment firms in the US do not want to service expats. It is important for expats to find an investment platform that will give them the flexibility to invest in US-compliant investment options.

It might be difficult for expats to find a cross-border financial advisor that will look after their best interests and use the best low-cost investment vehicles. One consideration for choosing the right platform is if the client still has an address in the US. For some expats that moved overseas for good, they don’t have an address back home in the US to go back to.

There are still options available for expats without an address in the US.

Investment Strategy

In investment circles, we hear often that what really matters is the investment allocation. How much do you allocate to each asset class or sub-asset class?

It is important to have a good understanding of the risks involved in investing in more risky asset classes like stocks compared to a lower risk asset class like bonds. Then we need to have the right mix of sub-asset class allocation. These are sub-segment of a broad asset class that is broken down.

They can be defined by capitalization (Large, Medium, and Small Cap), sector (industrial, financial, technology), and also by region or country. The same can be done with fixed-income investment allocations.

This is why we say 75% of the return comes from the right asset allocation. Having consistent rebalancing is key to keeping that allocation in line with the strategy in place.

Conclusion

At Harrison Brook, we strive to provide the best financial advice for expats. We offer holistic financial advice and we do our best to find the most cost-efficient ways of investing your funds while understanding that having a plan in place with a strategy is where it starts.

If you want to know more about how you can invest your US retirement assets in a low-cost portfolio, please don’t hesitate to contact us and we will be happy to help you.