At times like this, careful planning plays an especially important role in securing financial security over the long term.
Here are six key tips that can help.
1. Customise your strategy
It is crucial that your investment approach is designed to meet your particular circumstances and goals, including your risk tolerance and income needs. For example, are your financial arrangements tailored for your life in Portugal, where your expenses are mostly in euros, or are they actually better suited to a UK resident? Beware that, since Brexit, some UK savings and investments could attract a higher tax bill now that they are no longer EU/EEA assets.
With 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 is eaten away by inflation and/or unnecessary taxation.
2. Know your appetite for risk
Before investing, you need to pinpoint the right balance of risk and return for your peace of mind, but it is extremely difficult to do this effectively yourself. An experienced adviser is best placed to 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. Explore your options for controlling risk, such as staggering the timing of investments to reduce exposure to market movements.
3. Identify your timeline
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. Diversify, diversify, diversify
The higher your concentration in one particular investment type or area, 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 reduces your reliance on any one manager making the right decisions in all market conditions.
5. Don’t overlook 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 in Portugal, 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 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 challenging and changeable climate, regular reviews are even more important to help control risk and encourage a positive effect on portfolio performance.
To bring all these guidelines together, take personalised, quality advice from a regulated, locally-based adviser. With the right strategy in place for your life in Portugal, you can help protect and grow your wealth – in real terms – not only during your lifetime but for the next generations to enjoy.
With offices in Lisbon and the Algarve, Blevins Franks supports UK families living throughout Portugal with cross-border tax, investment, pension and estate planning advice.
Tel: 289 350 150