Selecting the right investment for teachers overseas
Expats often get a raw deal on their pension – usually they can’t pay into UK pension schemes and, if they are eligible to join their company’s scheme, it may also let them down.
Andrew Hallam, a British expat who built a million-dollar investment portfolio on a teacher’s salary provides a few tips designed to help Britons abroad save for retirement. His own interest in investing began as a 19-year-old when he spent his summer holiday washing buses to save money for college.
“One of the guys I worked with (a mechanic) was worth more than $1 million,” he explained.
“I could hardly believe it. He took me aside, taught me about the power of compound interest and convinced me to start investing a small amount every month.”
By the age of 37, Mr Hallam, who immigrated to Canada from Nottingham with his parents when he was three, was a millionaire thanks to his investment portfolio.
Andrew spent 11 years teaching at an international school in Singapore where he gave regular presentations to other teachers about low-cost investment options.
According to Mr Hallam, a combination of poor investment performance and high management fees can make some company schemes a bad deal.
“[My friends’] accounts were layered with ruinous fees. There were start-up fees that ran for as long as 18 months; ongoing annual account fees; and the underlying fees of the funds they bought. The more unfair the financial products were, the more prolifically they appeared to be sold to British expats. Those fees could make the difference between dining on caviar or dog food upon retirement.”
Look for example at a portfolio growing by 10% a year. Once fees of 0.2% are deducted it gains 9.8% a year. Over 30 years, investing £5,000 a year it would grow to £869,564. But if that same portfolio had annual fees of 4% it would only grow to £419,008 – a difference of £450,556.
So what should Britons abroad do with their pension savings?
“British expats shouldn’t speculate with their money,” suggested Mr Hallam. “Instead, they should build portfolios of low-cost tracker funds. Depending on where they live, they could use offshore accounts, giving them virtually tax-free gains.
“They would need just three tracker funds: one tracking the British stock market, a second tracking the international market and a third made up of British government bonds.”
* Having sold more than 40,000 copies of his first book >Millionaire Teacher<, Andrew Hallam followed up with >The Global Expatriate’s Guide to Investing<, published by Wiley.