Investment Management for Expats in Hong Kong

Being an expat may frequently add an extra layer of complexity and uncertainty when it comes to investing and managing your finances. 

Due to the overwhelming amount of options and tasks at hand, including managing local banks, living expenditures, taxes, and obtaining health insurance, it is easy to make rash financial decisions and short-term choices that can have a lasting impact on your life and money.

In this article we will examine some of the central ideas behind investment management for expats and what to expect when you invest as an expat in Hong Kong.

Investment Management 101

At a basic level, investment management involves creating a portfolio of stocks, shares, and other assets. It involves buying and selling assets, coming up with short or long-term investment plans, managing the portfolio’s asset allocation and risk, and creating a tax plan (especially important if you want to move back to the UK or a country with different tax laws than Hong Kong’s). 

This is often done by hiring a financial adviser or investment firm that will assist you in making a financial plan and managing your money and investments to meet predetermined goals. However, it is crucial that you do your homework before choosing a financial adviser to ensure they are honest, qualified and experienced in helping expats with their investments.

Asset Allocation

One critical aspect of investment management is asset allocation. It involves distributing the funds in your investment portfolio among stocks, bonds, and cash. The objective is to match your asset allocation to your time horizon and level of risk tolerance.

Many expatriates amass large fortunes while working abroad thanks to Hong Kong’s favourable income tax laws and attractive employment opportunities. This is why making an informed decision when allocating your assets is essential. 

Asset allocation is based on the trade-off between risk and return. Everyone can easily claim they want the best return possible, but the solution isn’t as simple as picking the assets with the highest “potential.” The 1929 crash, the financial crises of 1981 and 1987, and the downturn of 2007–2009 are all periods when choosing equities with the most significant potential returns was not the best course of action.

An Overview of Investments Available for Expats

Expat investment alternatives may come in various forms, and they can be either onshore or offshore investments. However, the tax advantages of offshore investments are often more appealing to expats.

Many expats choose to invest in the following financial products which are typically presented by overseas financial advisers:

• Offshore Investment Bond

Simply put, an offshore investment takes advantage of the benefits of being an expat or outside the investor’s home country.

Offshore investment bonds, commonly referred to as international bonds, function as a tax-efficient wrapper, enabling you to save and invest your money without paying taxes on the growth of your investments.

An offshore investment bond shields investment funds from income and capital gains taxes (such as those in the UK) by acting as a life insurance policy. This means that the investment grows free of tax, significantly raising the investment’s value.

The offshore bond’s minimum investment amount varies significantly from each provider. The recommended provider will also be determined by different variables, such as the desired level of control and diversification and the level of acceptable risk associated with an investment.

Investment bonds may have significant benefits, but it’s crucial to know the costs and fees incurred. Investment bonds usually have upfront charges as well as a recurring annual fee. A financial adviser may also charge you a management fee, which may be fixed or a percentage of the investment value under management.

Before choosing this type of investment, it is crucial to seek independent financial advice so you don’t make a decision that might affect you in the future.

• Pension Scheme

Another tax-efficient method of investing for expats is an international pension scheme. As you may be aware, a pension is a tax-efficient savings plan that frequently constitutes a core component of an investment portfolio and is intended to provide an individual with sustainable income in later life.

Suppose a British Expat has a sizeable pension in the UK. In that case, they may be allowed to transfer money from their UK pension outside the UK by enrolling in an International SIPP or a Qualifying Recognised Overseas Pension Scheme which may offer greater flexibility and more appealing investment options.

To learn more about the top pension considerations for British Expats in Hong Kong, click here.

• Property Investment 

Another investment alternative is property. Property investment has long been considered a safe addition to any portfolio. Investments in real estate could consist of their principal residence, a buy to let, commercial property or any other properties that generate a monthly rental income.

Regarding purchasing property in Hong Kong, expats have the same rights as residents, and no additional requirements or formalities are necessary. However, this does not imply that buying property in Hong Kong is simple. It is a time-consuming process that requires extensive market knowledge.

If you are considering buying property in Hong Kong, the tax laws governing Hong Kong income tax will apply to the rental revenue from a property. When filing your tax return, you risk negative consequences if you don’t pay your tax. Moreover, expats who intend to purchase property in countries like the UK whilst being overseas should work with UK-qualified accountants and mortgage brokers to oversee all pertinent costs, including income tax and rental income from the property.

• Investing through an International Bank

Investing with an international bank is another option expats often consider. However, even if you seek for help of an independent financial adviser in advance, you can still be constrained to the rules of the relevant international bank.

Most well-known international banks provide wealth management services to expats looking for reliable investment opportunities but the types of investments they offer expats can be heavily influenced by how much money they they are willing to invest. This can often limit their investment options.

Need Help With Your Investments? 

At Pyrmont, we are committed to finding what we believe is the best investment strategy to achieve market beating returns over the medium to long-term. Most importantly our main goal is to ensure that we have the best chance of achieving all of your future financial and life goals.

Where many traditional financial advisers and investment managers may use forecasts, predictions or emotive judgement to guide their decisions, our financial advisers follow Evidence Based Investment (EBI), a disciplined approach to investment management that combines facts, logic, empirical evidence and data we have from the past and present with the truth about the unknowable future. The concept behind this approach comes from some of the greatest modern financial and academic minds, several of whom have won Nobel prizes for their work in this field.

If you would like to discuss your personal circumstances and investment options, contact us today to learn more about how our unique evidence based investing and life-centred approach can help you reach your financial goals.