However well we have settled into our new way of life in Portugal and consider it our home now, most UK nationals living here continue with some British lifestyle habits. Whether it is a Sunday roast with all the trimmings, watching BBC or following the cricket, there are some ties with the UK we do not like to lose, and also comfort in familiarity.
It is the same with investments. Many British investors tend to own UK investments. They prefer shares listed on a FTSE index or corporate bonds issued by UK companies. Yet we live in a global world now. Many of today’s leading multinational companies are based in continental Europe, Japan and the US. The UK market comprises just one part of the global markets, and not a particularly big one.
British expatriates often hold on to their UK investments. Many keep on using their UK financial adviser, with the result that their financial planning is often more suitable for a UK resident than a Portuguese one. This can have unexpected consequences. Consider taking advice from a wealth manager who lives here and is experienced providing advice to British expatriates living in Portugal.
We meet many people here who have UK portfolios which are predominately exposed to UK assets, such as UK equity funds and UK bond funds. And their investments are denominated in Sterling. Having such a narrow investment focus is not advisable at the best of times.
It is even less advisable now following the UK’s decision to leave the EU. Whatever the future may hold, the UK is going through a period of uncertainty. The Brexit negotiations will take at least two years, maybe a few more, and it will be some time before we know what the UK/EU deal will look like. Then there is the political uncertainty, at a time when the country needs strong leadership.
The UK may have a tough time ahead before things settle down. Speaking on June 27, Chancellor George Osborne said that in his view the country is going to be poorer as a result of what is happening to the economy and this would mean tax rises and spending cuts.
On July 5, the Bank of England governor told reporters that the UK has entered a period of uncertainty and significant economic adjustment. The Bank was implementing measures to support households and businesses, but he conceded that its efforts will not “fully and immediately” be able to offset market and economic volatility.
It is more important than ever for British expatriates who retain UK portfolios to seek advice from an adviser based locally in Portugal, and look at improving diversification. You need a diversified long-term strategic asset allocation plan based on your current and expected future circumstances, needs and risk profile.
Diversification gives your portfolio the chance to produce positive returns over time without being vulnerable to any single area under-performing. There are various levels of diversification you should have in your investment portfolio:
1) Asset allocation – spreading your capital across different asset classes (equities, bonds, real assets, property, cash etc).
2) Diversification across geographical areas, sectors, company size (capitalisation), etc.
3) Owning equities and bonds issued by a range of companies (for example through owning a selection of funds).
4) Utilising a multi-manager approach where you diversify across managers and styles.
Currency is an important consideration.
If you are spending Euro in your day-to-day life, whether to pay bills, make purchases or for entertainment, all this will get more expensive if you are taking income or lump sums in Sterling and the exchange rate falls. You should have some of your investments denominated in Euro.
If you also spend money in the UK, expect to return someday or to leave an inheritance to UK residents, you may wish to have both Sterling and Euro investments. This is another key issue to discuss with your adviser, to ensure your investments are set up in the best way for your particular circumstances and to provide flexibility to change currencies in future if necessary.
Your adviser should take an objective assessment of your personal risk profile and develop portfolios around that as well as your needs and objectives – portfolios designed to control risk through multiple layers of diversification.
Wealth management advice is more important than ever now. Ideally you need investment and tax planning solutions that are based within the EU but outside the UK, so whether or not the UK is part of the EU does not make a difference.
By Gavin Scott
Gavin Scott, Senior Partner of Blevins Franks, has been advising expatriates on all aspects of their financial planning for more than 20 years. He has represented Blevins Franks in the Algarve since 2000. Gavin holds the Diploma for Financial Advisers. | www.blevinsfranks.com