Lately I have done a lot of thinking on investing and have gained a new perspective (again!!). It is nearing two years since I left the Sydney, it has been a whirlwind of an experience personally and professionally. In terms of investing it has made things so much more complicated as opposed to if I was to spend my life earning money just in Australia.
Some areas where things to get complicated are taxation, FX risk and choice of investments…
Being someone that quantifies financial instruments for a living it is generally a habit of mine to consume large amounts of information to come up with the most cost effective solution to financial problems. These habits leak into my personal investments as I seek to grow my wealth as fast as I can. In itself, this is not necessarily a bad thing, however the real problem is that I don’t put a dollar value on the time spent researching. Time that could be better used doing other activities such as improving my skills or just having fun!
As an expat there are few things I need to consider about my investments:
- Tax. No one wants to pay more tax than they are legally required. Things I need to think about is Australian and Singaporean tax treatment of property and shares. The changes in the tax treatment of my investments (income and capital gains) when if I move to another country, or if I move back to Sydney. It all becomes a massive headache when you run different scenarios and calculate the different investment returns possible.
- Investment Products. Being in Singapore I’m exposed to more investment products than before. Singapore Savings bonds? Corporate bonds in Asia? Shares in HK? China? Singapore? Investing in the U.S. is more common in Singapore as well given how small the market is here. More scenarios to calculate more variables to consider…
- FX Risk. This one is the big kicker. I get paid in SGD, I plan to move back to Sydney eventually so I’m subjected to the changes in the AUDSGD FX rate. For the time I have been in Singapore the exchange rate has fluctuated a fair bit. The range over the last two years is 0.9842 to 1.0952 i.e. for one Australian dollar. So if you have savings of 50,000 in SGD you could turn this into 49,210 AUD or 54,760 depending on when you convert. That’s 5,550 AUD difference! Enough for an awesome holiday or two! FX risk affects you in every aspect of your life if you plan to work overseas for a period of time. I would like to think I have finally gotten comfortable in dealing with it.
New Perspective on Investing
Looking at all the factors above would make your head spin…how do I structure my investments to lower tax? What investment products should I buy? When should I convert my money back into AUD? This is on top of the already difficult task of finding investment that produce great returns!
The approach I want to adopt is to not over complicate the investment process as there is marginal benefits when you factor in time. As with most things, it sounds simple unless you are in the thick of it. Always think about the long term. Wealth is accumulated over time. If you plan to work overseas for 5 years or less and you don’t have a networth in the millions then you are probably better off investing as if you did not work overseas. I have probably mentioned this before as well, if your networth isn’t in the millions then it is probably a better use of your time trying to increase your savings by either spending less or increasing your income through your job, side hustles or businesses. I fail to follow this advice all the time!.
A set of more explicit policies. To make it easier to digest, I’m going to write the policies in the perspective of an Australian Expat working in Singapore for 5 years or less who is relatively early in his wealth building journey – in other words me!
- Choose investment assets as if you were in Australia. You will not be taking full advantage of what’s on offer in Singapore however if your networth is below a million the impact is minimal. I can still consider U.S. investments but structure it from an Australian perspective.
- Periodically convert your SGD savings accumulated from working in Singapore into AUD. This is really a no brainer if you follow the first policy. No investment assets outside Australia so you don’t need any other currencies. Convert regularly to minimise the cost of the fluctuating AUDSGD rate, you will incur more transaction costs but the overall cost will be lower. I know a guy at work that either converts into USD or AUD depending on what he deems favourable – granted this guy is worth millions so the extra complexity might be worthwhile..might be…
- Minimising tax is a good motivation but direct that time and energy to increasing your income. Make money first. If you have reached a limit in terms of how much you can make through your job, focus on side hustles. If you are time poor and can’t do anymore side hustles, focus on managing businesses and buy other peoples’ time to make money. With the money flowing in, you can outsource the job of minimising tax to an expert who would do a much better job than you.
- Aim for average returns. A very important one. Don’t try to aim for the sky with your investment returns. If you are able to improve your annual return by 10% on say 100,000, that’s an increase in wealth of 10,000. This out performance is really hard to achieve, it would be easier to try and get a pay rise or do some extra side hustles.
- Have a diversified portfolio. This results in average returns but allows you to reduce the research and monitoring time and thus you can focus on making more money.
- Only invest in shares of companies during market crashes or when you see great opportunities. Don’t try to squeeze 5-10% extra return through stock selection. Your time is better spent making money doing what you are good at or passionate about. Market crashes are probably the only time you should do deep dives into single stock selection. This is when opportunities are more abundant and time spent researching and monitoring individual companies can provide exceptional returns.
Of course this advice is geared to individuals that haven’t hit that wonder 7 figure number. I wonder what life on the other side is like…
Also remember, the most important thing in life is to optimise is your time not your investment returns.
Disclaimer: : I wrote this article myself, and it expresses my own opinions. I am not receiving any compensation for it. Please note that all investments carry some risk. You should be aware that the value of your managed investment may not increase as quickly as expected, if at all, or that the value may go down. I have no business relationship with any company whose stock is mentioned in this article.