The $12,000 Expat Mistake: How to Optimize Your Tax-Advantaged Accounts Back Home

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$12,796 lost for skipping 5 minutes of work

That’s the opportunity cost one of my clients ACTUALLY paid this past year.

In our session recently, we looked through her brokerage account where she had an IRA that she had rolled over the year before. I asked her to click through to see how the money was invested—it turns out, it wasn’t. She had successfully rolled the old 401(k) into her personal brokerage account, but she had never actually invested the cash. If you aren't American, don't tune out: You may have the exact same trap sitting in your own retirement accounts.

An IRA is just a tax wrapper, it’s not an investment in itself. Depending on where you’ve worked, you may have an ISA & SIPP from the UK, Assurance Vie & PEA from France, TFSA & RRSP from Canada, SMSF from Australia or a PIAS from Spain. All of these are similar in that they confer some form of tax advantage to the contents inside, but what you do with that money inside of the wrapper is in your hands. You can keep the money in a cash savings account, or you can invest it. It’s your responsibility to make a choice and take action.

And this is one of the great tragedies of the modern individualized retirement savings schemes. If you don’t take action, you lose.

My client actually lost $12,796 by allowing her IRA to sit uninvested in a money market fund for a year. That is the actual amount she would have earned had she just invested the funds in VT (her chosen ETF) as soon as they landed in her brokerage account instead of sitting on it for a year.

It took less than 5 minutes to make the trade. It was a quick fix, and it will go on to earn her many times that over the rest of her life.

Inaction comes with a cost—in this case, it was $12,796.

My fee is €950. For this client, fixing that single blind spot after just two sessions prevented a further $11,694 opportunity cost that will only compound with time (that's the $12,796 opportunity cost minus my fee). I can’t promise what the market will return tomorrow, but I can promise we will find and fix the leaks. 

Not every client has a hidden quick fix that’s as obvious as this, but one thing all of my clients have in common is that we actually check for these kinds of “leaks” when we work together, and we make a choice on how to proceed with any potential optimizations we find.

Plug your financial leaks today, so you can spend more time taking selfies with your kids like me

Next Steps: Expat Financial Planning Optimization

Do you have any retirement accounts or tax wrappers sitting back home? Why not take 5 minutes and just check to see if your money is actually invested. Simply follow these four steps:

1. Log into your account.

This is a hard one, I know! You have to remember who the account was with, you have to dig up the log-in information. This is sometimes the hardest part.

Note: Not all providers are equal. Some providers of tax-advantaged accounts require you to invest in THEIR proprietary funds which can be more expensive or less diversified. Sometimes it’s to your advantage to move the account to another brokerage (like my client did last year). It’s also nice to have fewer financial accounts to worry about, so if you can consolidate them into a single brokerage account it will likely be easier to manage in the future.

However, rolling over an IRA or shifting a SIPP provider is not a 5 minute task. Sometimes it can be a real headache so you want to know which brokerage you’re going to and be confident that you’ll want to consolidate there. For now, let’s stick to the low hanging fruit.

2. Click through.

Once you’re logged in and can see the account, click through. You need to see how the money is actually sitting INSIDE the tax wrapper. You’re looking for names of ETFs or mutual funds.

3. Analyze.

Is the money in a money market fund? Is it in an S&P tracker? Is it in a variety of funds that you don’t really understand? Use a search engine to examine the individual mutual funds, ETFs, or other investment instruments your money is sitting in. Once you know what you have it’s time to…

4. Choose.

Does it look okay to you? Could it be better? If it’s in a money market fund, or entirely invested in bonds you should probably take action today. If it’s already in stock funds you want to understand exactly what stocks are included and what the fees of the funds are (the TER). People typically get higher returns with simpler portfolios. This minimizes fees and makes sticking to your plan much easier over time.

For most people, investing their tax-advantaged account into a single global index ETF is optimal (maximizing your growth inside these wrappers means keeping far more wealth protected from taxes over the long run).

However, not all tax-advantaged accounts function the same way. Some give tax relief on the way in (like a Traditional IRA), and some on the way out (like a Roth IRA). Depending on which type you have, you may want to balance the funds differently. It’s best to consider this money as part of your overall investment plan.

But if you’re not quite there yet with your long-term financial planning, just putting it into a global index fund means you’ll be doing vastly better than leaving it in cash, locking it in a single country index, or letting it lose value in an actively managed fund.

The Mechanics: Demystifying the "Trading Ticket"

If you’ve never actually executed a trade online before, the dashboard can look intimidating, like the cockpit of an airplane. But no matter what country you are in or what platform you use, every single investment company uses the exact same universal terms to process a trade. 

When you click "Trade" or "Buy/Sell" on your platform, you just need to fill out a simple form (called a trading ticket) with these five pieces of information:

• The Symbol/Ticker: This is the short code for your chosen investment. For example, if you want to buy the global index fund mentioned above, you type in its specific letters (like VT, VWRA, SPYY, or V3AA). If you don’t already have an ETF in mind you’ll want to decide ahead of time, if you’re not a US tax person, there’s a great guide here . If you are a US tax person like me, you’ll want a US domiciled ETF like the one I buy: VT.

• The Action: You will select "Buy." (Unless of course, you need to sell)

• The Quantity/Amount: I always recommend purchasing whole "Shares" or "Units" rather than a dollar amount. This simplifies accounting for the future. Take the dollar amount you want to invest and divide it by the rounded-up limit price you choose (about 0.5% higher than the current ask price is usually good enough).

• The Order Type: Select "Limit Order." This tells the system: “Buy this fund only if it’s less than the limit price I set.” This is a protection for you, but if you set the limit price too low the order will not be filled. This is often the default setting.

• Time in Force: Select “Day.” This is another protection for you; the order will be filled the same day, or will be cancelled if it’s not able to be filled. This is often the default setting.

Once you fill in those fields, you click "Preview Order" and then "Place Order" 

Some platforms will let you “exchange” the funds you already have directly, you just go straight to buying your chosen ETF and they will swap out your existing funds for the ETFs you’re buying (this is common if you are already in a money market fund). Others will require you to sell the existing funds first, then use the settled cash to buy your new fund. For buying and selling the process is the same, you just set the limit price 0.5% lower than the bid price when you sell.

That’s it. That is the entire "5 minutes of work" that separates an uninvested pile of cash from a growing global investment.

Many people can navigate this on their own, however if these steps are still too intimidating, you don’t have to face it alone. The entire purpose of my coaching service is to help people get unstuck. Most of my clients are incredibly intelligent, and many actually understand what they want to do—they just need support with the process.

Taking five minutes to audit your old assets is the perfect first step. Whether this was an easy win for you, or if just looking at the steps has you in panic mode, expat financial planning optimization goes way beyond a single checklist. That’s why I’m here.