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