Today’s climate presents many challenges to both preserving your wealth and seeing it grow over time. With ongoing Brexit uncertainty, prolonged low interest rates and changeable tax rules, it is hard for investors to achieve returns that are not eroded by inflation and taxation.
At times like this, careful planning plays a particularly important role in securing your financial security over the long term. Here are six key tips that can help.
1. Establish a suitable strategy
It is crucial that your portfolio is created and managed to meet your particular circumstances and goals, including your risk tolerance and requirement for income. For example, are your investments tailored for your life in Portugal, where your expenses are mostly in euros, or are they better suited to a UK resident?
If you have an ill-fitting investment portfolio, you could find that your money is not working as hard as you would like, is difficult to access, or even eaten away by inflation.
2. Establish your appetite for risk
Before investing, you need to pinpoint the right balance of risk/return for your peace of mind, but it is extremely difficult to effectively assess your own tolerance for risk. Speak to an experienced adviser who can ask the right questions and use appropriate tools to create a clear and objective risk profile for you. They can then recommend an appropriate blend of investments to match your specific profile.
Remember: without some element of risk, you may struggle to outpace inflation and could lose money, especially over the longer term. Your adviser can present options to help control risk within your defined boundaries; for example, by staggering the timing of investments in riskier assets to reduce exposure to market movements.
3. Identify your timeline for investing
Generally, the longer you have to invest, the more risk you can afford to take. With time, you can ride out market volatility and benefit from compound returns.
Understanding your time horizon is also the key to ensuring your investments offer the right level of ‘liquidity’. You never know when your plans may change – for example, needing to return to the UK unexpectedly for family or health reasons – so make sure you hold some liquid assets that can be easily sold if you need to access your capital or change your strategy.
4. Insist on diversification
The higher your concentration in one particular investment type or area – including the UK – the greater the risk. The best way to limit risk is diversification.
By spreading out investments across asset classes, geographic region and market sectors, you limit your exposure to any one area. You can take diversification further by choosing an adviser who uses a ‘multi-manager’ approach to spread your investments out among several carefully-selected fund managers. This can reduce your reliance on any one manager making the right decisions in all market conditions.
5. Incorporate effective tax planning
To help maximise your real returns and protect your wealth for future generations, factor in tax planning when setting up your portfolio. Look for arrangements that can shelter capital from tax while providing a tax-efficient income, and that enable you to transfer wealth to your beneficiaries with minimal bureaucracy and inheritance taxes.
For expatriates, tax planning is complicated by having to work with the rules of more than one country. An adviser with cross-border expertise can ensure you meet your tax liabilities, in Portugal and in the UK, while taking advantage of available opportunities.
6. Regularly review your strategy
Good financial planning is not a ‘set and forget’ exercise. Not only does everyone have their own unique set of circumstances, aims and requirements, these often change over time. This may be the result of moving into a different stage of life – approaching retirement, for example – or following a major event like relocating or receiving an inheritance. Or you could simply change your mind about what you want to achieve. External influences such as changes in the law or tax rules may also prompt a strategy rethink.
You should review your financial planning around once a year to keep it on track. But if anything significant happens that might affect the effectiveness or suitability of your portfolio, make sure you bring this forward. With today’s Brexit and global political uncertainty, regular reviews are even more important to help control risk and encourage a positive effect on portfolio performance.
To ensure you bring all these guidelines together, take personalised, quality advice from a regulated adviser. Whether you are looking at investments, tax planning, estate planning or your pensions, it is crucial that your approach is appropriate for you. With the right strategy in place for your life in Portugal, you can protect and grow your wealth – in real terms – not only during your lifetime but for the next generations to enjoy.
All advice received from Blevins Franks is personalised and provided in writing. This article, however, should not be construed as providing any personalised taxation or investment advice.
By Adrian Hook
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Adrian Hook is a Partner of Blevins Franks and has been providing holistic financial planning advice to UK nationals in the Algarve since 2007. Adrian is professionally qualified, holding the Diploma for Financial Advisers.