Expat life is SUPER exciting. You travel, meet new people, live an exotic lifestyle while earning good money (not everyone but most expats do).
While your expat life might seem like a fairy tail, the harsh reality is that your money and savings are at risk. Common expat destinations are infested with “financial sharks.”
During my 15 years as an expat, I’ve met those individuals on many occasions such parties and dinners. Sometimes recommended by colleagues, other times introduce themselves rudely with cold calls.
You might wonder; “Who are those financial sharks?”
Keeping it short; they are salesmen masked as financial planners whose primary goal is to sell complex, high-commission, financial products and, if possible, collect outrageous ongoing “advisory fees.” The worst part is that it’s all legal so you have no chance to get your money back.
Believe me when I say that your savings are at risk.
The intention of this article isn’t to explain how they manage to illude the law, but instead making you aware of those people and their products so you can avoid getting scammed. Also, I’ll show how to start planning for your retirement.
Sound good? If yes, carry on reading.
The reasons those “financial sharks” swim in the Middle East and Asian countries (where most expat work and live) are:
- Lack of regulations for financial services protecting consumers (they go unpunished)
- Lot of expatriate in need to fund their own retirement plan (many clients)
- Backed by-products created in Europe by legitimate companies (wonderful marketing materials)
- High commission products (very profitable)
In other words; “Wonderland for sale’s people.”
You see, where you come from the financial industry is regulated. It’s hard to make a killing of commission if you aren’t a truly professional financial advisor that bring REAL value to customers. Not only that but by promising the moon and not delivering, they risk jail.
So the sharks prefer to leave the harbor for the open sea where there are more fishes to catch, and little consequences if any at all.
I know what you might think: “Rudy, I’m not an idiot, I would never fall for those scams.”
I feel embarrassed to admit this, but when I was 24 years old and working in Dubai, I sign up for one of these plans losing thousands of dollars. I don’t want the same happen to you, you deserve a solid financial future.
I don’t doubt that you are a smart and savvy person, but these so-called “financial advisers” have many tricks up to their sleeve to convince you to depart from your savings.
Remember, what you don’t know, you can’t protect yourself from. Just think why you are scared of snakes… Because you know that they are deadly.
By taking ten minutes of your time by reading this post, you can protect your savings from unscrupulous conmen for the rest of your life. You’ve nothing to lose, only to gain.
So, without further adieu, let’s dig in.
RETIREMENT PLAN FOR EXPAT
Why do you think so many expats get corner by financial advisors?
In a sentence; Poor Financial Understanding
Expats are concerned about their retirement future because they can’t access to government retirement plans back home. So they need to take the matter into their own hands.
However, most expats feel confused about how to invest for retirement, so they seek external help. That’s is normal in most industries such law consultations or accounting, but when comes to money… forget it!
The best way is to get educated about investing and do it by yourself. Please, don’t scream just yet, I know how you feel. I’ve been there myself.
You don’t need to study for years or do some kind of master degree. Investing can be very easy and at the same time very effective. I’ll explain on the end of this article how you can start to invest for your retirement.
But first, read some of the unpleasant situations expats went through because they didn’t take the time to learn about investing:
- In one case written by Telegraph Money, a Briton working temporarily overseas was urged by his “financial adviser” to transfer a final salary-type pension, worth hundreds of thousands of pounds, into a risky fund where none of his retirement benefits would retain their guarantees.The charge for this risky maneuver was more than £45,000, or 12pc of the value of the pension.
- In another case, an investment was sold where, after five years, the saver was faced with an exit penalty of 99pc of their fund. Trying to withdraw capital would, in effect, result in its complete loss. In another example, investors paid a commission of 7pc to the salesman.
Are you wondering how these products work?
PENSION PLANS THAT SUCKS!
Such schemes are a sort of insurance sold as investment most commonly known as pension plan.
Every month you pay a set amount of money, the money gets invested in mutual funds of your choice linked to the market stock for a long time, usually 5-30 years.
Theoretically, after all these years you should have compounded your saving at an average of 5-12% return per year. In reality, a 2-4% year is what you get. That’s sucks.
You can buy Treasuries or corporate bonds and get better returns. No need to have a financial advisor.
If you never heard about mutual funds, they are investment vehicle made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.
The tricky part of these products is that they lock investors from which they cannot later withdraw without heavy financial penalty. They own your money, not you.
Let’s take Karl as an example. He’s 40 years old working in Dubai as hotel manager making US$ 80.000 per year. He wants to retire at 70.
Mr. Shark plans his retirement by asking strategic questions such:
- How much can you save every month?
- When are you planning to retire?
- What lifestyle do you expect?
You might think that Mr. Shark cares for your future, but in reality, he is working you over so he can sell you the most expensive plan that pays the highest commission for him.
Like a magician, he’ll show you different plans (safe – moderate – risky) for you to choose while letting you know that you are doing the right thing. Obviously, he’ll never talk about his outrageous fees that he’ll get after you sign the contract.
Most policies have a compulsory 12-18 months payments that you have to pay and can’t stop. If you stop, you have lost all your money.
Why is that so important? Because this initial payment ensures Mr. Shark and the mutual fund companies to get their fees.
There is no guarantee of performance, just a good luck. It’s like buy a brand new car without a warranty.
You might think; “Well, fund managers are professional and beat the market”.
According to Financial Times, 86% of active equity underperform the market. Sorry to say this but the odds are against you. Even if you pick the right mutual fund, the 14% that beat the market, the fees are so high making your investments underperform anyway.
To recap this point:
- Mutual funds don’t outperform the market.
- Second, they are very expensive.
Fortunately, there is a simple solution.
SO, YOU KNOW THAT PENSION PLAN ARE SUCKS. NOW WHAT?
Before investing, ask yourself…
- Where do I want to retire?
- How much money do I need to save every month to retire comfortably?
- What age do I want to retire?
Just imagine your retirement days, your lifestyle and how much money you need. How do you feel?
Do you want to drive a Ferrari or happy to ride an old Toyota? Live in a Villa in the Carribean or in a condo in Bangkok?
This will help to ensure your thought align with reality and fit into your goals.
Aim to live a comfortable life and don’t forget to add costs for doctors and medicine. Today, you might don’t see your doctor too often, but after your 50s you will.
I’ve found that ETFs (Exchange Trade Funds) are the best vehicle for expats with a busy working life not interested spending more than 10 hours per year in managing money.
What I like about ETFS:
- Fees are very low
- It’s a diversify product allowing you to invest in an index (many stocks)
- Very liquid
You can start building your portfolio right now even if you have never invested in your life. At first, it might seem intimidating, but with time, you’ll enjoy the experience. It feels good to see your little money soldier multiplying over the years.
Again, I recommend investing using ETFs in the beginning of your journey till you get a better understanding of investment’s vehicles.
We are on this journey together.
Got questions? Leave a comment! Let’s chat.