Financial planning for international school teachers

Last time I spoke about the needs of oil and gas workers.  Teachers overseas are in a similar position in some ways but in a different situation in other words.  The following points were made about oil workers but also applies to education:

1.  Health Insurance 

Your employer should provide this.  However, almost all insurers for expats, won’t cover pre-existing conditions at a reasonable rate if you haven’t already been insured through them.  In other words, if you have a contract in 2018 and are insured by AXA through your company, if you lose your job in 2020 and got cancer or a heart attack in 2019, you won’t be able to easily get insurance to cover those conditions unless you are part of a group scheme.  So spending 1%-2% of your insurance on your own health insurance makes sense.

2.  Income protection due to ill health

The average age for expats claiming illness insurance is 43-44 in Asia, not 54 or 64! Oil and gas has it’s stresses just like all jobs, but also some specific threats to your health.  Like on health insurance, protecting your income if a disability or serious illness occurs, can be incredibly cheap, provided you don’t already have pre-existing conditions.  

3. Life cover. 

If you have kids or dependents such as elderly relatives or a partner who doesn’t work, you need life insurance.  Insurance though is dead money if nothing happens.  Therefore, it makes sense to get as many benefits as possible, for the lowest possible price.  If you can get your income, life and health insured for 5% of your income, it is a non brainer and helps you sleep at night .

4. Income

If you are 55+ and are thinking about retirement, you should think about how your investment portfolio (which is hopefully relatively big by now) will fund your retirement.  What income options exist?

5. Property at home or abroad

This is part of estate planning and inheritance, but depend that, investing in property doesn’t always make sense.  It can do, depending on the area, whether you can find a buyer and so on. Expat mortgages can be reasonable and arranged.  

6.  Your current pension or savings

 How well is it performing?  Do you have too much money in the bank earning close to 0% or an underperforming portfolio?

In addition to the above, teachers have additional considerations, including the below:

1. Teaching isn’t the most lucrative occupation, but back home the pension benefits are substantial.  It isn’t usual for a teacher to get a pension of 17,000-20,000GBP, in addition to the state pension of around 10,000 pounds.  To put that in perspective, a teacher earning 27,000-30,000GBP in retirement would need a retirement post of over $1M if they did it privately.

2. Teachers overseas in international schools usually have bigger salaries, but less pension benefits.  This makes saving, and saving from a young age, important, to ensure you have parity or better with your peers back home.  If you are 30, investing $500-$800 may be enough to provide you with a good retirement come 60-65.  If you have left it until age 45, in comparison, you may need to invest $1,500+

3.  Unlike expats in certain functions in oil and gas, teachers can often get at least part-time work at 65 or even 70.  An expat teacher who is 65 needs to carefully consider how they will fund retirement, including part-time income. Nobody knows when their health will go, so this shouldn’t be an excuse for a younger expat to delay, but if you are in this unfortunate position, you need to see much your current pot could be worth on a monthly basis and then decide how many hours you need to work. 

Please contact me today if you have any questions about the above. 

Financial planning for oil and gas workers

Oil and gas is one of the biggest expat sectors in the Middle and Far East, and beyond.  Quite a large amount of expats in this sector, from my experience, have complex financial and insurance needs which in some cases are specific to their sector.  I look at a few below:

  1. Complex Pension situation/considerations 

Some expats are part of company schemes.  However, like most FTSE 100 companies, BP and Shell have huge pension deficits.  They aren’t alone.  Despite the recent spikes in prices, the number of companies that have gone bankrupt or slashed their pension schemes, has gone up sharply in the North Sea, Far and Middle East and beyond.

This means that it makes it imperative to consider whether to transfer your pension overseas.  Often the benefits of doing so are huge, and can be done through some of the UK and world’s largest pension providers which have been approved by HMRC and other tax authorities.  EU nationals working overseas, especially Dutch, Belgium and Irish citizens, are also entitled to similar benefits.  For German, Nordic and and other expats, it can be more difficult.

If you don’t already have pension arrangements, this makes saving for a pension even more important.  The lifestyle of oil and gas, with 6 weeks on and off very common, make bad spending habits very common.  It isn’t uncommon for expats on huge packages to spend it all!  As age discrimination happens more commonly in many Asian countries than in the West, it might happen whereby you lose your job or contract isn’t renewed due to age. 

2.  Health Insurance 

People in oil & gas should take protection against ill health and income particularly seriously, especially in some job functions.  Your employer should provide health coverage, of course.  However, almost all insurers for expats, won’t cover pre-existing conditions at a reasonable rate if you haven’t already been insured through them.  In other words, if you have a contract in 2018 and are insured by AXA through your company, if you lose your job in 2020 and got cancer or a heart attack in 2019, you won’t be able to easily get insurance to cover those conditions unless you are part of a group scheme.  So spending 1%-2% of your insurance on your own health insurance makes sense.

3.  Income protection due to ill health

The average age for expats claiming illness insurance is 43-44 in Asia, not 54 or 64! Oil and gas has it’s stresses just like all jobs, but also some specific threats to your health.  Like on health insurance, protecting your income if a disability or serious illness occurs, can be incredibly cheap, provided you don’t already have pre-existing conditions.  

4. Life cover. 

If you have kids or dependents such as elderly relatives or a partner who doesn’t work, you need life insurance.  Insurance though is dead money if nothing happens.  Therefore, it makes sense to get as many benefits as possible, for the lowest possible price.  If you can get your income, life and health insured for 5% of your income, it is a non brainer and helps you sleep at night.

5.  Income 

If you are 55+ and are thinking about retirement, you should think about how your investment portfolio (which is hopefully relatively big by now) will fund your retirement.  What income options exist and their associated risk and reward is important.

6.  Property at home or abroad.  

This is part of estate planning and inheritance, but depending on that, investing in property doesn’t always make sense.  It can do, depending on the area, whether you can find a buyer and so on. Expat mortgages can be reasonable and arranged.  

Also depending on how many days a year you are on the rig, this will affect whether you are considered a resident or not.  As an example,  if you spend more than 90 days a year in the UK, even if you live in the Middle East, this will sometimes affect whether you are considered an expat for property and investing purposes.

7,  Your current pension or savings.  

How well is it performing?  Do you have too much money in the bank earning close to 0% or an underperforming portfolio?  The academic evidence suggests time in the market is more important than timing the market, and therefore waiting too long to use your money productivity is a long-term mistake, regardless of the short-term.

 

If you have any questions about the above, my contact details are Adam.fayed@imperiumcapital.com

Is stock picking ever rational?

Please contact me at adamfayed@iamgltd.com if you have any questions about this article or questions in general.

 

Consider something for a moment.  If you stock pick (individual stocks) rather than buying funds, you have an 80%+ chance of beating the market over a 5 year period. That goes down to about 98%+ over a 40 year + investment career.  There are many reasons for this. 

Even small costs of buying and selling build up.  Good short-term returns, moreover, increase egos, and complacency comes into play. One of the biggest reasons is that the information is all there transparently, so there is no such thing as a free lunch. Remember, all the information about companies is publicly available and there are people whose job it is to look at this information and weight the pros and cons of all that information.

Take tech as an example.  It was true in the 1990s that those IT geeks who correctly predicted the future, could have made tones of money. Certainly early investors in Facebook or Amazon did.  However, it would have been madness to put a significant percentage of your wealth in Amazon in 1995. A rational investor can only make decisions based on the information he or she has available at the time.  Predicting the future is almost impossible and those who get it right once, probably won’t next time. This is something cryptocurrency advocates should know too well, considering many believed in hyperinflation and a depression as bad as the Great Depression 5-10 years ago. 

There are so many unknown unknowns and know unknowns for all companies, and especially start-ups. If Amazon’s CEO would have died 20 years ago, or there would have been a huge scandal or employees would have joined a competitor on mass, the company would never have succeeded.  Who knows, maybe Amazon almost went bust early on before they publicly revealed information which only becomes a legal requirement once it goes public.  And more to the point, even though tech has on average done well over the last 20 years, most tech firms have gone bankrupt. 

Buying the market and a broad basket of companies isn’t speculating.  It is just assuming that, like always, in the long-term, the biggest 100-200-300 companies in the US or elsewhere will be worth more money in 10-20-30 years than today.  So regardless of whether in 2050 most of the S&P is financial services, law, consumer goods or even bitcoin mining companies (i doubt that though!), an investor who buys the market will profit.  They just won’t profit as much as somebody who invests 100% of their wealth in the one coin that beats the market!  One of the reasons the average DIY investors only makes on average 4%-5% per year when markets have gone up (historic average) 10% per year, is because they assume they are smarter than others due to `research`.  

It is human nature to think you are smarter than the average, but the academic evidence is clear that enhanced knowledge won’t allow you to consistently beat average market returns.  You will almost certainly beat the market some years, but on average, you will lose long-term.

This whole mania around cryptocurrency is another case in point.  The price could go up or down, but very few people (or any) are buying `a basket of coins` which tracks the average price of the market.  Instead they tend to buy 1, 2 or a maximum of 3 coins. This means, that even if the market increases in the future, many people in the market are engaging in something akin to stock picking.  

Let’s say somebody owns one coin, and that coin is implicated a political scandal after a dictator stashes and it is subsequently outlawed across numerous countries, then the price will go down.  Not to mention, let us imagine for a second the coins become a victim of their own success, they do become a threat to the state’s ability to raise revenue, and therefore becomes a libertarian’s dream.  State regulation will hammer the price.  I have heard some people say the ridiculous phrase that `regulation can’t affect the price`.  That is silly.  Let’s give an extreme example now.  Let’s say in 2019 there is a terrorist attack funded by some of the coins, as terrorists use it to fund themselves.  If there is a popular backlash and the coins are banned globally or even just in the OECD, the price could go close to $0.  Every time a new regulation is announced, the price goes down.  It could be made an illegal offense to own or trade any coin tomorrow or the day after tomorrow, in an extreme event.

The price of bitcoin and others coins may skyrocket, but that doesn’t mean that an investor is irrational to say no to it in 2018.  It is pure speculation and at best should represent 5% of a portfolio, if somebody can’t resist the temptation.

Which local insurance provider is best in Cambodia?

I have had a few questions recently from clients and associates about local insurance in Cambodia, such as housing, car, business and fire insurance.  We don’t provide such policies.  On average, Cambodian Investment Management is the best provider in the local market.  For expats with Khmer wives, husbands and partners, they also offer good local health policies.  I would avoid a couple of the bigger firms.

How about for non-locals or returnee Khmers?  For expat health, life and income protection insurance, I would avoid all policies from Cambodia.  Ultimately, insurance is only a promise to pay out if something happens.  A promise is only as good as the person, institute or government giving that promise.  Many insurance companies have gone out of business before and Cambodia was in war barely 20-30 years ago.

Therefore, it is best to use an international provider, who is actually based in UK, Switzerland, HK or any other developed city/country with a long tradition of rule of law.  As the AIG case showed, the governments of the US and EU are willing to bail out big insurers who get into financial difficulties.  It is unlikely the Cambodian government could do the same if a insurance company or bank got into financial difficulty.

Finally, there is a world of difference between AXA Thailand or AXA Zurich (as an example) and AXA Hong Kong or AXA UK or US.  Many of the bigger companies have local offices in Cambodia and other South East Asian countries.  However, that means local laws apply.  So some of the safeguards that exist in HK, Singapore or elsewhere, no longer exist to the same extent.