If you have savings abroad, where should you save?
When I was a financial advisor I worked with several international families. Generally, they all had the same concern: which currency should I save money toward?
There are two ways to look at this problem. First, you could bemoan the fact that you have to guess which currency is the right one to save toward. There’s significant upside and also significant downside. If you save into the wrong currency, you could find yourself with much less money than if you picked correctly.
The second (and in my view….better) way, is to avoid the decision altogether and save into BOTH currencies. This is enticing for a number of reasons:
1) You aren’t placing a bet, therefore avoiding the “which is better” issue.
2) You can now focus on withdrawals, rather than savings. If currency fluctuation continues (and it will), you’re in the enviable spot of pulling dollars from the currency with the highest return at the time.
3) You have flexibility built into your plans, especially if you wish to travel abroad.
Of course, there are also risks to think about. While I like the “not choosing” strategy, there are a couple of reasons to be wary:
1) You may have tax returns in multiple countries. If you’ll be required to file tax returns for the countries where you have savings, you may find that the cost and time associated with this plan isn’t worth the effort. That’s why I only recommended saving internationally if you were going to accumulate
2) You’ll have to facilitate international money transfers. By understanding the process, fees, and (maybe most importantly) time this process will take,, you’ll have realistic expectations. By partnering with a good international bank, you can quickly learn the ropes of having money in multiple countries.
3) You’ll have to stay on top of different “dashboards.” As I’ve mentioned in previous pieces, I prefer diversification but with simple tools to examine so that I can quickly make decisions. Having money internationally can compound the task of setting up monitoring systems if you aren’t careful.
As you can see, I think the rewards clearly outweigh the risks when it comes to international investments. If you have enough money abroad to make the process worthwhile, understand taxation of international assets, and have good banking partners, the process can be smooth and rewarding.
Photo: Rome Cabs
My girlfriends grandparents have this predicament. They live 6 months in the U.S. and 6 months overseas in Europe. I was always curious as to how they saved and invested their money and if they did it more in the U.S. or in Europe. I think for them that they keep most over here in the U.S. but that is a problem most would not think of until they run into it!
Thanks for the article.
I love diversification and this is the ultimate example of it. You are staving off getting a full hit on all of your savings, but still allowing you to make the right decision based on when you need to make it.
It’s definitely the ultimate version of diversification….but sometimes can be a big pain in the ass if you don’t have a good way to monitor the overseas investment.
I have businesses in the US and in Thailand. I agree with you, saving money in both currencies is the way to go. Under US laws, I have to report my earnings in Thailand; as far as Thailand business law goes, I rely solely on a professional to help me make decisions and understand my rights.
Great advice, Jen. Thanks for sharing.
I opened up a bank account in england once with $500 it turned out to be more hassle than it was worth.
Right on, Marvin. I was thinking more $20k or more to really make it worthwhile….even that isn’t really a significant amount and could be too much hassle.
A bird in hand is worth more than two in the bush.
A hard asset in hand is worth more than paper.
I recommend commodities instead of foreign currencies.
People who aren’t buying gold are missing out because they are thinking short term don’t worry about losing a few points gold is up over 500% in the last 10 years.
I love buy low strategies. Gold up 500% is exactly why I’m weary of gold. That said, I’m with you…over long periods of time, precious metals are a better bet than daily currency fluctuation.
I think getting into currency trading (FOREX) is more gambling than I’m personally comfortable with. BUT if you’re a person who’s lived in two countries and have accumulated funds in both, leaving the funds there to “even out” the currency risk is a good strategy (provided that you’re investing significantly enough for it to matter).
Its definitely something you need to take care with. While the super rich can leverage an opportunity such as having several locations in which they save their cash the average person can quiet easily have this “perk” backfire on them and they end up paying more tax than they would if everything was in one place.
Nice read
Great post on the diversification topic. Interesting to consider the international tax models, as well.