How do you invest as an expat if you do not know where you will eventually settle?

How do you invest as an expat if you do not know where you will eventually settle? Easy! You tweak a traditional portfolio ever so slightly. In this article we show you how.

The majority of people can put together a really strong investment portfolio with a couple of index funds.

The majority of expats can do the same thing with a couple of exchange traded funds (ETFs). The key difference between ETFs and index funds is the fact that you can trade them on stock exchanges. This is important because index funds aren’t usually available to expats.

Expats can buy ETFs through a stockbroker. (We’ve reviewed a few open to expats here if you don’t already have one).

Other than that there’s hardly any difference between these fund types worth noting. Both are cheap and keep taxes to a minimum.

Most expats who know where they are going to retire can combine a global equity fund with a government bond fund for the country where they intend to settle.

A British expat who plans to retire back in Britain would choose a UK government bond fund. But how do you invest as an expat if you do not know where you will eventually settle?

Easy! You invest in a global government bond fund. There are lots of them on the market these days.

Here are three examples:

• iShares Global Aggregate Bond UCITS ETF
• iShares Global AAA-AA Government Bond UCITS ETF
• iShares Global Inflation Linked Govt Bond UCITS ETF

The first thing to say is I’m not affiliated to iShares in any way, shape or form, they just happened to have the best bond fund products for expat investors. In fact, all things being equal I usually opt for Vanguard products and would recommend their offering for your global equites. You can read about it here.

I’ve summarised the main differences between these iShares bond funds in the table below:

Bond funds for the undecided

	iShares Global Inflation Linked Govt Bond UCITS ETF	iShares Core Global Aggregate Bond UCITS ETF	iShares Global AAA-AA Govt Bond UCITS ETF
Ongoing Charges Figure (%)	0.20	0.10	0.20
Weighted Avg Maturity (Years)	12.82	8.88	10.14
% US Bonds	45	37	20
% UK Bonds	30	5	10
% AAA rated bonds	51	37	67
% AA rated bonds	38	15	32
Includes corporate bonds	No	Yes	No
Includes EM	No	Yes	No
Inflation protection	Yes	No	No

It’s worth just defining a few of those things we are looking at.

Ongoing Charges Figure (OCF) is a measure of the total costs associated with managing and operating an investment fund. In this case even the more expensive ones at 0.20% are still pretty cheap, but all things being equal the cheaper the better.

Weighted Average Maturity refers to the length of time it will take until the average security in the fund will mature or be redeemed by its issuer. Generally, the shorter this is, the less volatile a fund will be. People tend to like a shorter duration when they are expecting inflation too. However, bonds do payout interest, and this tends to be higher the longer the duration. It is also worth noting that government bonds with long durations do tend to go up when stock markets crash so many investors like them for crash protection.

%US and UK Bonds is looking at what percentage of the fund is allocated to each country’s bonds. The US makes up a large part of the bond market in many funds due to the sheer size of its financial markets. Some investors like to have a lot of exposure to the US market, others not so much. And as a Brit I like to know what % of the fund will be allocated to my home country’s bonds.

%AAA & AA bonds considers what percentage of the fund is allocated to these highly rated bonds. AAA being the best, but bonds rated AA are also considered high quality. The more of each you have the less likely for any defaults and the more likely it is that you’ll get your money back. (In reality, you’ll get your money back from developed country governments. Bond defaults would just mean the funds performance suffers.)

Corporate bonds and emerging markets bonds both have their advantages and disadvantages. Having them in your fund adds a little more diversification to your investments and they typically provide slightly higher returns. However, at the same time, they are considered more risky. Essentially, there’s more chance of the odd default or two.

How to choose your fund?

Which bond fund you choose will depend on what you prioritise.

For what its worth, my take on it goes like this. If you are worried about inflation and want to priortize protection against that then iShares Global Inflation Linked Govt Bond UCITS ETF is probably a good choice.

But if you want to prioritise credit quality or you’d prefer not to have your investments heavily weighted to the US then iShares Global AAA-AA Govt Bond UCITS ETF could be just the ticket.

Then again, if you want to diversify as much as possible or perhaps keeping fees to a minimum is your priority then iShares Core Global Aggregate Bond UCITS ETF might make sense for you.

And no doubt there are plenty of other reasons for choosing one over the other, but its my guess, that most investors over the long term will be served equally well with any of these options.

How do I divide between stocks and bonds?

The only question then becomes. How much of your money should you put in a bond fund when compared to your equity fund.

This is a big question which you can read more about here if you are interested. But in short, it pays to do you due diligence.

That said as time goes on I like the 4% rule more and more. It says you should have 4% of your portfolio in equities for every year you invest. The rest of your money should be put in bonds.

So if you were investing for 10 years you’d have 40% of your money in equities and the rest in bonds. Alternatively, if you were to invest for 2 years you’d have 8% of your money in equities and the rest in bonds.

And in fact you can tweak this to match your own temperament. If you are risk averse then swapping 4 with 3 could be a good decision. Investing for 10 years would drop your equity allocation to 30% with this approach. Maybe you won’t make quite as high a returns if the market continues its upward trend, but you’d be better protected in a bear market or market crash.

How do you invest as an expat if you do not know where you will eventually settle? – The bottom line

So there you have it.

Investing as an expat doesn’t need to be difficult. Choose a stock broker, choose a global bond ETF, pair it with a global equity ETF, decide how you’ll split your money between the two and then simply add money to your portfolio whenever you have it