Living abroad as an American expat offers incredible rewards: new cultures, exciting opportunities, and a fresh perspective on life. But alongside these benefits there are some real challenges, especially when it comes to managing your finances. Not least among the financial challenges expats face is deciding what to invest in as an American living abroad. US and foreign regulations, tax and reporting implications, and limited access to some financial services can all create unexpected barriers. Understanding these barriers is the key to making informed decisions and understanding your investment options as an American living abroad.
In this article we look at some of the options available depending on how much you have to invest.
1. If you have up to $200,000 to invest
At this level, your investment decisions should prioritize simplicity, tax efficiency, and accessibility. You need clean, compliant accounts that let your savings grow without unnecessary fees or compliance costs.
The safest starting point for many expats is to use US-domiciled ETFs or mutual funds. These avoid PFIC classification, which triggers IRS forms like 8621 and potentially new tax implications. Most foreign mutual funds and ETFs fall into the PFIC category, meaning they carry complex mark-to-market rules and high tax rates. Sticking to US-registered funds keeps things straightforward.
While many US brokers won’t work with expats living in many countries, Charles Schwab and Interactive Brokers often will open accounts for Americans living abroad. These platforms let you hold US stocks, bonds, and ETFs without falling afoul of local or IRS rules. The downside is that if you live in the EU access to certain funds may be restricted under European regulations like PRIIPs. That said, with the right setup, most Americans can still buy low-cost US ETFs through US platforms, although access to US mutual funds will be limited without a US address.
If you earn eligible US income, you might consider contributing to a Roth or traditional IRA. These accounts grow tax-advantaged and won’t trigger any cross-border tax issues. The main caveat is that if you exclude your income by claiming the Foreign Earned Income Exclusion, it may limit your ability to make IRA contributions. If you qualify for the Foreign Tax Credit instead, you may still be eligible, however.
Foreign pension plans often enter the picture if you work abroad. If there is a tax treaty between the USA and your country of residency, then the foreign pension plan may be tax-deferred in the USA if it is tax-deferred locally, and also PFIC regulations may not apply in pension plans recognized under a tax treaty. However, in the absence of a tax treaty, the IRS may treat a non-US pension plan as a foreign trust or PFIC. If you contribute to one, you’ll need to file extra forms like 3520, 8938, and possibly 8621. These plans may offer local tax breaks, but they rarely help on your US return.
If you want to diversify further, local real estate may appeal. A rental property can generate local income and bring capital appreciation. The US will still tax any profits, though you can usually use the foreign tax credit to avoid double taxation. Care should be taken however to always keep sufficient investments or savings in liquid investments that can be sold if an unexpected financial need arises rather than tie up all your funds in illiquid property.
2. If you have $200,000 to $1m to invest
If you have more than $200,000 to invest, strategy matters more. You need diversification across asset classes and currencies, without creating a compliance nightmare.
US-domiciled ETFs remain your most efficient option for broad market exposure. These funds don’t trigger PFIC rules and are well-covered by the IRS’s existing tax framework. You can build a globally diversified portfolio using US ETFs that track US, international, and emerging markets. Because these are US-registered, you’ll get 1099s at tax time, rather than a number of separate forms that need collating as are often provided by overseas investment firms.
The Foreign Account Tax Compliance Act (FATCA) requires Americans to report foreign financial assets over certain thresholds. With a larger portfolio, you’ll almost certainly need to file FATCA-mandated Form 8938 in addition to an FBAR. This makes using US-based accounts even more attractive, since they simplify reporting and reduce audit risk.
Foreign pension plans are more common at this level, especially for executives or long-term employees. These plans can be helpful locally, but the IRS may view them as taxable, especially if employer contributions are vested. You may face double taxation on growth inside the plan unless you rely on treaty provisions to delay US tax until distribution. Even then, additional reporting and US taxation may apply.
Many expats explore real estate at this stage, either locally or back in the US. A US rental property can produce steady income and fits cleanly into your US tax return. Foreign properties on the other hand can offer income in the same currency as where you live and inflation hedges.
Currency management becomes more important as portfolio size grows. If your expenses are in euros for example, holding only dollar-denominated assets exposes you to exchange rate risk. Some investors address this by holding part of their portfolio in local currency or investing in ETFs that hold non-US investments. Others match currency exposure to future goals. For example, if you are planning to buy a property in local currency within a year or two, then it might make sense to keep those funds in relatively safe local currency investments or savings accounts.
3. If you have over $1m to invest
At this level, it still normally makes sense to keep the core of your portfolio in US-domiciled assets. These remain the cleanest from a US tax and compliance perspective and avoid PFIC complications. A core-satellite structure can help here: use low-cost ETFs for your core holdings, and add real estate, alternatives, or local investments for diversification.
Rental real estate becomes more attractive for high-net-worth expats, particularly if you’re looking for long-term inflation protection or passive income. Owning property in the US gives you tax deductions, depreciation, and familiar rules, whereas non-US real estate can yield income in local currency and further diversify your investment portfolio.
The more assets you have, the more important estate planning becomes. The US estate tax exemption is $13.99 million for 2025, but foreign thresholds may be much lower. Without proper planning in all jurisdictions where you have assets, your heirs could face taxation in two countries.
Setting up a US revocable living trust can help. It avoids probate in the US and offers some protection for US assets. However, you must coordinate with an attorney to ensure your trust doesn’t conflict with local inheritance law and is recognized in your country of residency. A mismatch between your US and foreign estate plans can cause delays, taxes, or disputes.
Working with professionals becomes essential. Work with an advisor who understands both the US and your host country’s rules. Investing across borders requires precision and knowledge of the broader expat investment landscape.
Final thoughts
US tax rules reach across borders and create traps for the unwary. Whether you’re investing $20,000 or $20 million, it’s important to stay tax-optimized, compliant, and diversified.
At all levels, US-domiciled funds offer global opportunities and compliance simplicity, avoiding PFIC rules and other offshore reporting rules. The disadvantages can be not being able to access these funds due to local rules, your US broker not being able to work with you once you’re abroad, and currency exchange risk if you earn or wish to draw from your investments in another currency.
Seeking advice from a US expat wealth manager will always allow you to find tax and reporting optimized solutions that also fit with your long term investing and life goals.
If you have any questions about your situation or require assistance managing your investments 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.
