The first priorities for most Americans when moving overseas are typically housing, visas, and banking, with financial considerations often lower down the list, to begin with at least. However, at some point, most expats want to make adjustments to their portfolio to better reflect their new situation and evolving plans. This can be more complicated though, due to local rules that can affect the ability to invest in the USA, or US rules that affect the feasibility of investing overseas, as well as new currency and cross-border diversification considerations.
So once you’re living abroad, a decision that used to be easy now has to take into account myriad new factors, and that’s where some guidance is helpful.
In this article, we’ll outline the main investment considerations and options for Americans living abroad.
Why investing gets more complicated when you live abroad
Relocating overseas can significantly affect your financial situation and options. Many US brokerage firms become more restrictive, with some freezing or closing accounts due to your new non-resident status. You’ll also discover that the US has a global taxation system for all US citizens, so you (and your investments) will often be liable to both the US tax and compliance rules as well as those of the country where you now live.
At the same time, local banks and advisors tend to offer solutions that may seem entirely reasonable, and often are for someone whose financial life sits fully within that country, but may not be for US citizens – the complication only really becomes clear once you look at how those investments are treated from a US perspective.
Furthermore, currency begins to matter in ways that don’t always feel urgent but gradually shape how you think about access to money, as you may want your investments to align better with your current or future earning and spending rather than lose out every time you transfer funds internationally.
Start with your account structure before choosing investments
For a lot of Americans abroad, US-based accounts remain central. These give you access to lower fees and greater transparency as well as more investment options than are available in most other countries. You can still contribute to US IRAs from abroad, depending on your US tax filing strategy (hint – it can be harder if you claim the Foreign Earned Income Exclusion). Note also that if you plan to retire abroad, the country where you’re moving to may not respect the tax advantages of US plans.
However, your US brokerage firm may not be able to work with non-residents, so you may have to change your brokerage firm to one that can. A US specialist cross-border investment advisor can help you with this.
Depending on your new situation and future plans, it can make sense to open investment accounts abroad, however US tax rules can limit what you invest in without creating US tax and reporting liabilities, and many foreign advisors aren’t familiar with US rules.
It may be worth exploring other options if you’d like to invest abroad, such as foreign real estate. Note also that once you have assets abroad, you’ll probably need a will in that country as well as in the US.
Keep your core portfolio simple, diversified, and global
It often makes sense after moving abroad to update your portfolio to align better with your current or future spending currency.
This can mean investing locally, though you can still achieve global and to an extent currency diversification through US markets by investing in globally focused funds.
The advantage of retaining your investments in the US is that it keeps your US reporting simple, as foreign financial accounts have to be reported every year on FBAR and FATCA forms.
Be careful with non-US funds and local investment products
At some point, the conversation usually shifts toward local investment options, whether through a bank, an advisor, or simply because it feels like the natural next step.
Where things start to diverge is in how those investments are treated once US tax rules come into play, which is rarely part of the initial discussion. A non-US mutual fund, for example, may function perfectly well within the local system but create a very different set of consequences when viewed through a US lens.
That difference doesn’t show up in performance, but in complex new US reporting and tax consequences. The alternative is to invest abroad just in individual stocks and bonds rather than in funds.
It’s not that these products are flawed, it’s that they’re just not designed with US tax rules for expats in mind.
Managing currency risk
Americans living abroad often pay close attention to exchange rates, especially when currency rate movements can affect your costs of living, if for example your income is in dollars but your day-to-day spending is in another currency.
Currency movements can also increase or decrease the relative value of your investments relative to your current or future spending needs.
There are ways to manage this risk. Investing locally, and holding cash or near-term reserves in the currency you expect to spend in can be good strategies depending on your situation and future plans. You can also think about minimizing currency conversion fees working with a currency broker to transfer at beneficial rates.
Consider your investment plan in the context of where you may retire
The question of where you’ll eventually retire doesn’t always have a clear answer, though it starts to matter more once your financial life stretches across borders. Even a general direction can affect how your investment decisions are framed.
If you’re likely to return to the US within a couple of years, keeping your investments there often continues to make sense, since the accounts, tax treatment, and eventual spending all align in the same way. That alignment tends to simplify things later on, even if it may not feel ideal while you’re abroad. If you plan to retire abroad meanwhile, the situation can become more nuanced.
A longer-term future abroad introduces more moving parts, from how income is drawn to how different tax systems apply over time.
Plans evolve, sometimes gradually, sometimes not, which makes it less about getting this decision exactly right and more about avoiding choices that are difficult to adjust later.
A workable investing framework for Americans abroad
It’s important to keep your investing within the framework of your life plans and financial goals. While these can (and often do) evolve, it still provides a guiding principle, rather than investing in what you happen to be feeling or opportunities that arise at the time.
A good approach is often keeping the core of your investment portfolio in the US and broadly diversified, while also holding local investments in the form of cash products such as term deposits or CD-equivalents that don’t overcomplicate or negatively impact your US tax situation.
Living abroad adds complexity, though it shouldn’t change your goals or overall investment strategy. What changes is how much more important it becomes to make sure your investments are well structured for US and foreign compliance and tax optimization, as well minimizing currency risk, supporting your spending and allowing access when required.
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.
