The Most Common Investing Mistakes Made by American Ex-Pats

1. The Most Common Investing Mistakes Made by American Ex-Pats Americans living abroad do not have it easy when it comes to investing. From US brokerages providing only a 30-day notice before the shutdown of foreign resident accounts to the nightmare of holding foreign mutual funds, it can become very challenging. Here’s MASECO’s list of some of the most common mistakes American ex-pats make when investing. American Ex-Pat Investing Mistakes: 1. Purchasing Foreign Mutual Funds Foreign mutual funds may seem attractive to Americans living abroad. However, according to the IRS, foreign mutual funds are considered a Passive Foreign Investment Company (PFIC) and can be a problem for US tax filers. If you are a US citizen or a US permanent resident living and working abroad and investing your

2. savings through a non-US financial institution, you need to understand PFICs. PFICs are subject to special tax treatment by the US tax code. Aside from the tax rate applied to the investments being much higher than the tax rate applied to similar US-registered investments, the required cost for record- keeping and reporting PFIC investments on IRS forms will run a few thousand dollars per investment each year. 2. Purchasing Investment Products Outside of the USA Foreign countries take a rather loose approach to regulating foreign investment advisors, resulting in bad actors entering the industry and selling financial products. These financial products have high commissions, lengthy lock-in periods, and poor performance. Although these financial products may be suitable for some, they do not belong in an American’s portfolio. Stay connected with a regulated US advisor who is not incentivized by commissions and adheres to the legal obligation to act and invest for US ex-pats properly. 3. Doing Nothing Many American ex-pats are intimated by the complicated rules and endless horror stories they have heard about investing while living in a foreign country that they take no action at all. Efficiently investing while living abroad can be daunting, but a little research can go a long way. Qualified advisors from MASECO’s reliable wealth management firm can help with these critical decisions. Investing your money while away will help you keep up with your savings, whether for your children’s college education or your retirement. 4. Misunderstanding Currency Exposure American ex-pat investors often mistake the currency in which their brokerage firm reports the value of their investment with the fundamental currency denomination of those investments. For instance, many foreign public companies list their shares in their home country and other foreign countries. These listed shares will trade in dollars, but that does not make them US dollar investments. The listed shares in the United States track the performance of the shares on their principal exchange. Likewise, the performance of a mutual fund listed in the US that invests in foreign currency bonds is determined by the fate of those fundamental currencies. It is not relevant that the fund trades in US dollars. The end effect is that you can build multi-

3. currency investment portfolios through a US brokerage firm that lists all investment values in US dollars. 5. Overinvesting in the Country of Current Residence Opportunities for rapid growth may appear endless one day and disappear the next morning. When earning profits, it is easy to be influenced by ‘progress’ or ‘change.’ There are universal laws of diversification, and the penalties for failing to obey those laws are equally universal. Take profits in the local market and re-invest them into different markets in case the long-term theory turns out to be a little too optimistic. 6. Purchasing Non-US Tax Compliant Insurance Any non-US registered insurance products that hold cash value (policies that can be redeemed for a certain amount of cash instantly) do not qualify under US tax rules as insurance. Therefore, they do not benefit from any tax advantages that can make insurance a great long-term investment (primarily tax deferral). Without this protection, your insurance policy is nothing but a foreign investment account in the eyes of the IRS. Furthermore, it is likely a foreign trust loaded with Passive Foreign Investment Company (PFIC) investments whose tax reporting requirements are toxic for US taxpayers. MASECO is an independent wealth management firm that works to refine the lives of our American and global clients by simplifying their wealth management requirements. Our immensely experienced and skilled advisors are available to help avoid these common mistakes many American ex-pats make by developing customized investment strategies for each client.