In part one of our series on gold, we looked at what it is and why people are tempted to buy it.
In part two, we covered why you probably shouldn’t invest in it.
Now, we’ll look at what people living abroad need to know about investing in this precious metal and how to do it if you’re so inclined.
So? Should people living abroad invest in gold?
If you read part two in our series, you’d know that we’re not big fans of gold investing.
That article mostly covered investing for everyone, not just people living abroad.
In all honesty (and as you know this), people living abroad are regular folks that just happen to live outside of their home country.
Likewise, when we invest, we have to understand the basics of investing in general and account for our unique situations.
So should people living abroad invest in gold?
Well, it depends, but not really.
As we explained, gold is a by-and-large inefficient investment.
In short, it’s:
- Way too volatile (risky) for what it delivers;
- has unfavorable taxation rules;
- Often-overpriced and;
- Doesn’t generate any income.
Whether an expat or not, everyone faces these realities.
For us living abroad, there are some other points we need to consider.
You either need to take it with you, leave it in another country or invest in a fund.
Gold is a physical commodity that you have to store somewhere.
That means either keeping it in a vault at a bank or a safe in your house.
Well, what happens when you move to a different country?
Shipping it across borders will be costly, requiring specialized transporters and insurance.
There are also important considerations (more on that below).
If you decided to leave it in the country you left, how quickly can you access it?
Furthermore, suppose that the borders close for a global emergency as they did in March 2020.
Will you be able to get your gold?
The importance of every investment that’s not real estate or an early-stage startup is that you can quickly get your money out as an investor.
We call that “liquidity,” and physical bars aren’t that liquid.
Investment funds solve a lot of those problems, but not all of them.
Depending on where you move to, that fund might not be registered there, creating access and tax issues.
Taxes are even more complicated when moving around the world with gold
Unlike stocks and bonds, gold doesn’t have a uniform tax treatment.
Each country treats gold investments differently, with some considering it a collectible rather than an asset.
Some apply additional taxes to purchases and sales.
These are on top of capital gains (the tax you pay on investment profits), turning the tax calculation into a real headache if you move countries.
If you move and want to bring your physical pieces with you, you could potentially pay import fees.
What’s more is that if you don’t declare it, you’ll risk getting slapped with fines and even having it confiscated at the border.
Taxes are hard enough as-is for people who never change countries.
Expats and remote workers have it even worse, and long-term gold investing will only add to your miseries.
Gold represents an additional currency exchange-rate risk
Investors and traders quote gold’s price in US dollars, making it the precious metal’s default currency.
If you don’t need a fat stack of dollars when you reach your investment goals, investing in it will be counterproductive.
Why? Exchange rates are volatile and notoriously unpredictable.
If you’re exposed to foreign currencies in your portfolio and not hedging that risk, you’re not maximizing your return.
While many investments can carry FX risk, gold is terrible since it doesn’t generate income, which would “cash you out” periodically.
For example, suppose you have a multi-currency investment strategy.
In that case, you earn euros but have an investment goal in British pounds.
Gold only adds complexity.
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Does gold have any role in a portfolio?
It’s impossible to say with any certainty in a blog post as each reader has different investment goals and risk profiles.
In general, the metal can play a minor role in a diversified portfolio, depending on how you do it.
However, that role can’t be understated.
We ran gold through our algorithms in various model portfolios to see what value is provided.
Our modeling tools said that 5% would be the absolute maximum allocation it was willing to give it.
Even then, it was in one of the most high-risk portfolios we could come up with.
The metal’s role wasn’t to provide growth but to diversify other risks, which it wasn’t even that good at.
How can I invest in gold while living abroad?
If you’re dead-set on investing in gold as an expat or international remote worker, there are some pointers you should know to make your lives easier.
Avoid physically purchasing gold.
Managing any physical investments is time-consuming and costly.
Having some collectible coins, jewelry, and other bits is just fine.
Don’t go out and buy bars and wafers (1-ounce bars).
Buying and owning bars means paying for safekeeping and insurance.
These are running costs, meaning you always have to factor them into your investment calculations.
As mentioned above, you run the risk of not accessing your investment if you leave your gold in another country.
Futures trading is just that – trading.
Short-term trading does not equal long-term investing.
Futures traders who buy and sell gold contracts do so daily, sometimes as a full-time job.
You’re most likely NOT going to beat a professional or an algorithm.
What’s more, active trading plays no central role in long-term investing and can even be harmful.
If you feel confident or at least comfortable trading futures for the fun of it, by all means, do so.
Just make sure it’s not your primary long-term investment source.
Also, suppose you’re trading futures contracts, and you don’t sell it before it expires. In that case, you have to take delivery of the commodity, regardless of whether it’s gold or something else.
The last thing you probably want is to wake up one morning with a truck full of oranges waiting at your front door.
Understand the taxation impacts of the way you invest in gold
Taxes are a part of life, regardless of where you live.
If you think it has a place in your long-term investment strategy and you plan on moving to a different country before then, learn the relevant tax rules.
Knowing these calculations from the start will give you an accurate understanding of your investment’s net worth over time.
Remember that taxes can change at any time, which will impact any investment decision you make, gold or otherwise.
ETFs are likely your best option to invest in gold due to the way ETFs work (which is why we love them for people living abroad)
Investing in a fund is by far the more efficient way to gain exposure to precious metals.
We’re huge fans of exchange-traded funds (ETFs) for people living abroad since they’re low-cost, transparent, and cross borders well.
A handful of ETFs out there invest in gold — either directly or through stocks of mining companies.
ETFs are also tax efficient, which means many (but not all) related problems with physical investment disappear.
You can sell funds at any time without going through a special agent.
Some neobanking apps also allow their users to buy gold on their platform.
Here, you have fractional ownership of a bar, but without dealing with the safekeeping costs.
However, tax considerations are still at play in this case.
It’s almost a no-brainer that expats and remote workers should use funds and not physical bars to make investments.
Gold should play a small part in your portfolio. There are better things to invest in, even to protect against inflation.
Like we wrote earlier, our modeling tools couldn’t find a central place for gold in any portfolio we tried.
Instead, they relegated the asset to a minor supporting role.
Countless other financial analysts have come to the same conclusion.
As investment experts for people living abroad, we see additional exchange-rate and liquidity risks that others don’t have to account for.
Whatever you do, please make sure your investments don’t run counter to your goals.
These rules aren’t limited to gold.
Any commodity or investment that doesn’t generate income isn’t worth having in a long-term portfolio.
We talked a lot about gold, but these rules also apply to the other precious metals (silver, platinum, and palladium) and other minerals and products.
Speak to an expert/adviser who can find the right mix for you.
As with any investment idea or plan, if you’re unsure about what to do, it’s definitely worth speaking to an expert.
These professionals can help you find out if gold can fit into your investment strategy or help you find better alternatives.
At abroaden, we specialize in helping people living abroad create and manage awesome wealth-building strategies.
We do it all using our specialized tools to cut the emotion out of investing, giving you the high-caliber advice and management you deserve.
We’ve spent the past three articles showering you with golden insights on everyone’s favorite precious metal.
Thoughts or questions?
Let us know!