Why Asset Allocation Works Differently When You Live Abroad

Most asset allocation models are built around a fairly settled set of assumptions: a known retirement age, a known retirement location and a portfolio that will be drawn down in one currency, in one tax system, over one continuous period. For an investor who has always lived in the same country, these assumptions generally hold.

For an expat, they often don't. You may not yet know which country you'll retire in, your time horizon may be interrupted by further moves, and the ‘safe’ or ‘growth’ label attached to a given asset class can mean something quite different depending on where you're sitting when you come to draw on it.

Asset allocation for expats has to be built with this uncertainty in mind, rather than assuming a single, settled endpoint.

As most investors approach retirement, the general approach is to gradually move away from higher-risk, higher-growth assets like equities, and towards steadier, lower-risk holdings like bonds and cash.

This is often referred to as a glide path. The idea is to protect what you've built up over the years, so a market downturn shortly before you retire doesn't derail your plans, rather than continuing to chase growth once you're closer to relying on that money as income.

A domestic investor making this shift can reasonably assume that bonds and cash held in their home currency will provide the stability they're aiming for. An expat cannot always make the same assumption, because the eventual retirement location isn't fixed.

Assets that look defensive relative to one country's inflation and interest rate environment may not behave the same way relative to another.

This doesn't mean expats should avoid defensive assets, it means the choice of which defensive assets, and in what proportion, needs to reflect a realistic view of where retirement income will actually be needed, not just an assumed default.

Conventional asset allocation guidance assumes a fairly smooth progression: more growth assets when young, gradually shifting towards capital preservation with age. This progression assumes continuity - the same investor, in the same regulatory environment, moving steadily towards one retirement date.

Expats who relocate every few years are effectively restarting parts of this planning process each time. A move can change which asset classes are accessible, how they're taxed and what ‘risk appetite’ should reasonably look like given a shorter or less certain runway before the next transition.

Rather than a single, steady shift towards capital preservation, expat asset allocation often needs to be revisited at each significant relocation, not just reviewed on a fixed annual schedule.

An asset allocation strategy is only as good as an investor's ability to actually hold the assets it calls for. Residency status can restrict access to certain funds, retirement wrappers or investment platforms, meaning the ‘ideal’ allocation on paper isn't always available in practice.

An investor who is a non-resident of their home country, for example, may find some domestic investment products closed to them (such as the UK ISA), while products more suited to their new country of residence may not have existed as an option before they moved. 

Asset allocation planning for expats needs to work with the realistic universe of what's available given current residency, rather than a theoretical ideal.

Expats often accumulate investment accounts, workplace pensions or advisory relationships in more than one country over the course of several moves. Without a consolidated view, this can result in unintentional overlap - several accounts each holding similar exposures - which undermines the diversification the original allocation was designed to achieve.

This doesn’t mean that any single decision was wrong, it’s about the difficulty of maintaining a coherent overall picture when the goalposts change and when a portfolio is spread across jurisdictions. Periodically reviewing all holdings together, rather than provider by provider, is important for keeping an allocation strategy intact.

None of this changes the basic principles of asset allocation - balancing growth, income and stability according to goals, time horizon and risk tolerance remains the starting point. What changes for expats is that these inputs are less fixed. Retirement location may be undecided, time horizons may be interrupted, and the tools available to implement a given allocation can vary from one country to the next.

An asset allocation strategy that accounts for this uncertainty, rather than assuming a single steady path, is far more likely to hold up as your circumstances change.

If you are living an internationally mobile lifestyle, it's worth reviewing whether your asset allocation reflects your actual circumstances, or simply the assumptions it was originally built on. 

Our advisers around the globe have the cross-border expertise to help you assess whether your current strategy is working as intended. If not, they can suggest how to adjust it to reflect the realities of your expat life. 

Get in touch if you’d like a review of your portfolio.