Committing to investments can sometimes seem a little daunting, especially if unpredictable world events have a short-term but significant impact on the markets.
However, you can take steps to better position yourself in your investment journey.
A fundamental principle is understanding that your portfolio is very personal. It should be built around your unique circumstances, risk appetite and long-term goals.
Moving to a new country, from the UK to Portugal, for example, is a major change. For anyone relocating – even more so if you are doing so on your retirement – a portfolio review should be high on the list of priorities to ensure their savings and investments are optimised for their new life in Portugal.
Time in the markets – not ‘timing’ the markets
Remember, investing to yield the best returns often proves to be a marathon, not a sprint. ‘Chasing candles’, a term given to those who buy and sell based on market fluctuations for short-term gains, will rarely help you to achieve your long-term financial objectives. The primary failure that could be ascribed to this strategy is how it is often driven by emotion. Having a clear objective to stay in the markets for the long term can negate the effect of short-term volatility.
Warren Buffet said: “Be fearful when others are greedy, and greedy when others are fearful”. This statement may have been offered to show the importance of perspective. While some may claim Buffet does not panic because he is wealthy, others could state that he is wealthy because he does not panic.
The fear of missing out (FOMO) can be a strong motivator for making bad decisions. Unexpected bull runs in a region or sector, or sharp market rises hyped up by journalists and commentators, can create a strong desire to join in rather than risk regretting that you did not take the opportunity. The problem is often that it has already happened; you are too late – you may have bought at or near the market peak.
Just because a particular asset or sector experiences rapid, short-term growth, there is no guarantee it will continue. On the contrary, a market correction often takes place shortly after an event such as this, causing the price to drop as quickly as it had risen as the market or sector has been over-inflated.
A leading cause of FOMO is the ‘buzz’ generated around a particular asset, usually via the internet and social media, but it rarely comes from an expert source. This can lead people to make impulse decisions to invest in a concentrated way, rather than have the reduced risk a diversified portfolio can bring.
A diversified approach
A significant amount of data suggests that a well-diversified portfolio of investments will help you achieve better long-term returns. It may be tempting for British expatriates to stick to UK investments and with assets you are familiar with, but this approach, where your investment capital is concentrated in one area, potentially increases risk.
Remember that different assets and regions generally perform differently. A diversified portfolio can help to mitigate the drop in value of a particular investment, asset type, sector or region, or even offset the loss with the gain of another to bring overall profit.
Familiarise yourself with all options – from sustainable projects with an ethos you support to tax-efficient structures that will help you to maintain the lifestyle you are used to. If you feel a little unsure about how best to structure your portfolio for a life in Portugal, taking specialist advice can help.
Tax-efficient investing for living in Portugal
As mentioned, it is important to structure your investments specifically around your new circumstances, objectives, time horizon and risk tolerance, and this also includes taxation. The way you hold investments can make a surprising difference to how much tax you pay. You need to understand the Portuguese tax regime – and there are tax-efficient opportunities available to residents of Portugal.
Take personalised, integrated investment and tax planning advice for Portugal.
These views are put forward for consideration purposes only as the suitability of any investment is dependent on the investment objectives, time horizon and attitude to risk of the investor. The value of investments can fall as well as rise, as can the income arising from them. Past performance should not be seen as an indication of future performance. Summarised tax information is based upon our understanding of current laws and practices which may change. Individuals should seek personalised advice.
Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com
Sharon Farrell is a Partner of Blevins Franks in Portugal.