Solid Investment Advice for Expats Living in The Netherlands
Want to make your money work harder for you? Looking for expat friendly investment advice?
For expats, investing in the Netherlands might seem scary at first, so we asked Edward Mainwaring-Burton of Black Swan Capital Europe to break down each step for us, in an easy to digest format.
Let’s start with the obvious question – Why invest while you are in the Netherlands?
It’s simple. Interest rates at Dutch banks are at historical lows right now. In fact, many banks are giving negative interest rates. This means your savings will lose value just sitting in the bank, guaranteeing you a loss. If you’ve got €50k+ in the bank, that loss isn’t small, so these days it might be better to invest your money instead. Also, keep in mind that the Dutch wealth tax will eat away at savings. This is why it’s important to put your money to work whenever possible.
Step 1: Before you start – define your goals!
This advice applies to everyone, not just expats. Write down these headings on a piece of paper: today, next year, five years, ten years, twenty years. Go along each of these timescales and think about what you want to achieve at each point. In ten years you might be thinking about your kids’ international school fees or taking care of your parents. In twenty years you might want to buy a holiday home or start a business. Does a comfortable retirement mean returning to your home country, or sailing around the world? Break down each scenario and try to assign it a cost. This will help you understand how much cash you’ll need and will help define what investments to make. Also keep in mind that before you do invest, you’ll want to make sure you have at least 3 to 6 months of expenses as a rainy day/emergency fund (which you don’t touch unless you have unexpected or urgent costs) before you start.
Step 2: Deciding (knowing) how much to invest?
The amount you invest will relate to the goals you have set, your income, your monthly savings, and your lifestyle. For most people, investing should be about the money you can afford to live without. Factor in whether you have a rainy-day fund or set aside an extra amount above your essential needs. By making the right choices you can grow that amount over time, achieving your goals with the least possible risk. One thing is certain, though, starting sooner rather than later can greatly increase an investor’s success rate.
Step 3: Deciding what to invest in and where/how
Online Investment Platforms vs. Using an Advisor
Online investment platforms have seen a surge in new accounts. According to Mainwaring-Burton, even though they are accessible and relatively low cost, they can be risky if diving into them alone.
Industry professionals spend years learning the trade so they can advise their clients. Kicking a football in the park a few times doesn’t make you Cristiano Ronaldo! Ask yourself – is this a hobby where you don’t mind losing some play money, or is this a lifestyle? If you want to invest significant money, seek professional advice first.
When picking an advisor providing your expat investment advice, think about trustworthiness, thoroughness, transparency, and licensing. The Netherlands has strict policies on licensing. If someone is trying to sell you a financial product or service and they are not licensed, that’s a real concern. Also, don’t be afraid to ask how they make their money. The entire process should all be transparent from the beginning. If you are unsure, ask friends or family members for a trusted referral. Find someone who speaks your language and has expertise in the countries you will spend your time and money in.
What to Invest in based on your goals and your tolerance for risk
There are a number of “assets” (i.e. things you can buy or sell) one can invest in. Your goals and, of course, risk tolerance should decide what the best combination (or mix) should be is for you. Some examples of assets include:
- Stocks/Equities – Shares/pieces of companies (e.g. Apple, ASML Nestle, Amazon)
- Funds – A collection or group of Stocks/Equities
- Bonds/Debt – Essentially lending money to a company or a government in return for interest and your capital
- Commodities – Everything from gold to peanuts that can be processed to make money or held to store value
- Crypto Currency – Digital currencies (e.g. Bitcoin, Ethereum)
The above are, by no means, all the possible options, but they are some available to you. Each asset has a different level of risk vs. return. For instance, if you’re someone who has the requirement for high short to medium-term growth, but can’t sleep at night when there is a sudden drop in your portfolio, that’s an important thing to consider. It’s also important to note, as you get older and closer to your goals, the asset mix may change from more volatile to less volatile. Furthermore, do keep in mind that unexpected events may occur that could impact your situation, such as inheritance or a loss of income. Hence why it’s important to always have a good overview of where you are with your investments.
What about investing in property?
If you do invest in property, decide first if you plan to live in it, or if you plan on getting a return out of it. Then, you can plan around this. There is a saying about property investments summed up with the phrase ‘safe as houses,’ but that’s not always true. However, the market in the Netherlands is strong as interest rates are low. There is also a housing shortage.
Property shouldn’t make up 100% of your investment portfolio because it comes with two main risks. First, it’s hard to turn into cash when you need it. Second, investing in property always has unpredictable external costs (e.g. boiler breaks, increase in leasehold). These can be more difficult to resolve as an expat. You will need to work with local suppliers and local regulations, so make sure you’re prepared and understand the risks.
What are your thoughts on cryptocurrencies?
Everyone has that friend who’s made a fortune in Bitcoin, but if so many have then there’s a good chance you’ve missed the boat. Early adopters make the biggest returns as they take the biggest risks. No one ever got rich on yesterday’s success. In general, the less well known they are, the riskier they are. Nowadays, Bitcoin is increasingly being used as a so-called “safe haven” asset like gold or the Swiss Franc because it is widely used, easily tradeable, and has a limited correlation to the stock market.
Step 4: Post-investment concerns like retirement and currency fluctuations
Flexibility is a key concern for globetrotting expats. Investments like pensions and life insurance are often attached to one country’s rules. For example, in the US for most Americans, the pension age is 59.5 years (401k/IRA – retirement funds). Conversely, in the Netherlands, the retirement age will typically be 67 years in 2021. If you retire in the US, for instance, that’s almost 8 years where your money is inaccessible after your retirement age. It would be paid in Euros which may create tax and currency complexities. The currency conversion rate will also have an impact on the final amount. All of these complications can have a significant impact on your return, so it’s important to find an advisor with the relevant international expertise. Make sure your investments are structured to match the countries you will spend time in.
If given €50k right now, how would you invest it?
Even though I am an expat, I can’t answer that question for your readers as the answer is different for everyone. I am an expert, but I still take advice on my own investments as I am emotionally invested in my life. Investments, and their risks, must relate to the goals of the investor. I wouldn’t want to influence anyone who thinks they can simply follow my decisions! My investment decisions might not be suitable for their goals.
A final piece of expat investment advice
Accepting help is a sign of strength so don’t be afraid to ask if you don’t understand something. For expats this is especially true as clear and up to date information in English or in your native language can be hard to find. A good advisor will help you understand the jargon, clear up the language barrier, and break things down into chunks that you can take on.
If you’re an expat in the Netherlands looking for investment advice tailored for you, get in touch with Black Swan Capital Europe Today!