info@abacus-wealth.com
Investment Strategies for Affluent U.S. Expats
August 15, 2022
Although the basic investment planning concepts for high net worth (HNW) investors are not much different from most, there are certain strategies that stand out when optimizing portfolios for affluent investors. The complexities are magnified if the affluent investor does not reside in the U.S. for tax purposes. The following investment techniques are crucial for HNW investors or those with $5 million or more in investable assets:
Maintain a well-balanced portfolio in relation to your objectives and risk tolerance
It goes without saying that proper diversification is key to successful portfolio management. The Modern Portfolio Theory (MPT) that won Harry Markowitz, Merton Miller and William Sharpe the 1990 Nobel Prize in Economic Science has become the gold standard in efficient portfolio management until today. Low to negative correlations in global allocation strategies between developed and emerging markets as well as various economic sectors and company sizes according to market capitalization will all play a role in determining the optimal performance of your portfolio along with a well-disciplined rebalancing strategy to keep your portfolio allocation strategy in check. Of course, the balancing of risk assets would not be complete without good stewardship of fixed assets within the allocation matrix of your portfolio as well.
Be mindful of tax savings strategies
The biggest investment expense for U.S. taxpayers around the world is tax and compliance. HNW investors are usually in the highest tax bracket making tax savings a huge priority for their investment optimization strategy. There are a few strategies available to HNW investors depending on their investment objectives. Tax efficient portfolios, pension plans, Private Placement Life Insurance (PPLI) strategies and tax-loss harvesting strategies to name a few. Avoiding toxic assets such as Passive Foreign Income Companies (PFIC) should also be part of your tax savings strategy.
Considering Alternative Investment Strategies
An accredited investor is an individual or a business entity that is allowed to trade securities such as hedge funds, venture capital and private equity funds that may not be registered with the financial authorities. They are entitled to this privileged access by satisfying at least one requirement regarding their income, net worth, asset size, governance status, or professional experience. This allows affluent investors to invest in more sophisticated investment strategies that would otherwise not be available to the general public. This helps to enhance the diversification of their portfolios and take advantage of ground floor opportunities that may have a low correlation to the rest of their portfolio.
Developing Asset Protection Strategies
High net worth individuals are more susceptible to lawsuits, fraud, and estate or inheritance taxes among other things. Having a back-up plan and considering sophisticated mechanisms like offshore trusts or corporations, irrevocable trusts, limited partnerships and LLCs may help create a barrier to these risk exposures.
Philanthropy
Charitable giving has several advantages, but the most fundamental one is supporting a cause that is meaningful to you. Though we may not always agree with the government’s stewardship of our tax dollars, philanthropy gives us the option to divert those tax dollars toward a cause you believe in thereby giving you better control of your money for the benefit of your community. The accompanying tax benefit is an extra bonus of charitable giving. There are numerous tax efficient ways to give to charity. Tailored to your unique goals and financial condition, a competent financial planner can guide you in choosing the most suitable strategies. Some of these choices may include:
- A direct donation of money or highly appreciated assets
- Using a donor-advised fund (DAF) to make donations
- Formation of a family foundation
- Establishment of charitable trusts
Disclaimer:
- The information provided is for educational purposes only and does not constitute personal financial, tax or investment advice and should not be relied on as such. It does not take into consideration any investor’s particular investment objectives, strategies, time horizon, and tax or legal status. Abacus Wealth International (AWI) does not provide tax or legal advice. Please consult a tax or legal professional for corresponding tax and legal advice.
- All material and content have been obtained from sources believed to be reliable. AWI does not guarantee the accuracy of the information provided and shall not be held liable for decisions based on the foregoing information.
- All examples of graphs, financial products and historical returns contained in the foregoing material are for illustration and educational purposes only and shall not be deemed as financial advice or recommendation. Past performance is not indicative of any future investment returns.