For Americans, living abroad adds new layers of complexity to your finances. Currency and cross-border tax considerations are among factors that make investing as an expat more complex. In this article, we’ll explore how US expats might respond to market volatility, focusing on long-term planning, investment diversification, and avoiding emotionally-driven spur of the moment decisions.
Trump’s tariffs and their effect on markets and investments
Recently, we have seen market turbulence driven by global trade tensions. The reintroduction of US tariffs on China and other countries by President Trump has reminded investors how fragile global supply chains are. Tariffs, while intended to protect domestic industries, can in practice lead to retaliation, inflation and market volatility.
For US expats, as well as affecting portfolio balances, market volatility can be destabilizing for income and for retirement planning too, due to currency fluctuations.
Markets often price in worst-case scenarios before long-term effects are known, so it’s important not to confuse noise for substance. These fluctuations highlight the importance of an effective diversification strategy.
Lessons from past market volatility
History is filled with market downturns, many worse than the current one. In recent history, the dot-com bubble of the early 2000s, the global financial crisis in 2008, and the COVID-19 pandemic in 2020 all led to significant sell-offs. But in every case, within as little as a year of two, the market recovered and soon went on to reach new highs.
What we can learn from past downturns is that market volatility is part of the investing journey. Over time, rather than avoiding downturns or panicking when they come, we are better served by being patient staying focussed on our long term goals.
US suffering more as tech stocks were overvalued anyway
US markets, especially tech-heavy portfolios, have taken a bigger hit recently compared to markets in other countries. This is largely due to big drops in the stock prices at the big US tech firms. Years of growth made names like Apple and Tesla household staples, but investor excitement often outpaced fundamentals. Expats with US-heavy portfolios may be currently taking a bigger hit than those with broader global exposure.
Why US expats should avoid selling during market volatility
During volatile periods, it’s tempting to sell, but it’s often the worst time to sell. Selling during a downturn locks in your losses, and with markets moving fast, timing the rebound is tricky, and you are more likely to miss out on the benefits of the recovery.
The better approach is to hold steady. Long-term investors understand that short-term declines are part of the journey. If your investments align with your goals and risk tolerance, a temporary dip shouldn’t change your strategy.
For US expats, especially those with accounts still tied to the US (like IRAs or brokerage accounts), staying the course simplifies cross-border tax issues. Frequent trading increases taxable events, potentially triggering short-term capital gains taxes both in the US and abroad, and leading to increased reporting at tax time.
Opportunities for US expats: Investing during market dips
Volatility also creates opportunities. If you’re sitting on extra cash, a market dip might be a good time to invest. This doesn’t mean you should throw everything into stocks all at once, but selectively buying into quality companies or index funds when they’re trading at a discount can pay off over time.
For Americans abroad, this is a chance to rebalance portfolios strategically and put idle cash to work.
Make sure that you’re not overexposed to US assets just because they’re familiar. This is a great time to consider diversifying internationally and in new sectors and currencies, strategically of course, to balance your portfolio and in line with your goals. As an expat, always seek advice from an expat specialist investment advisor though, as they understand the importance of remaining compliant and optimized for tax and reporting in both the US and your country of residence.
The importance of diversification
Diversification is one of the most effective ways to manage risk. When your portfolio includes assets or regions that don’t move in sync, it helps reduce losses during downturns. For US expats, portfolio diversification means more than just a mix of US stocks and bonds. It’s about global exposure, and it also means thinking about currency. If your expenses are in euros but your portfolio is in dollars for example, consider hedging or holding local assets.
Final thoughts
Market volatility is never easy, especially when you’re managing money across borders. With a thoughtful, long-term approach however, it needn’t derail your plans. Instead, your strategy should be to stay calm and diversified and be aware of investment opportunities if you have spare cash during market volatility as a US expat. Working with an experienced financial advisor who understands tax-efficient cross-border investing and the unique challenges that come with being an expat also increases your chances of success.
If you have any questions about financial planning as an American living abroad, get in touch.
This article is for informational purposes only; it is not intended to offer advice or guidance on legal, tax, or investment matters. Such advice can be given only with full understanding of a person’s specific situation.
