Rules of investment for expats
If you haven’t already started investing in your retirement then you’ve already started losing money, says Paul Davies, a financial planner.
For many expats, saving for retirement was a motivation behind moving to Doha, given the large salaries on offer here. However, for some the benefits of a bigger paycheque are offset by the absence of employer-assisted plans. Companies in Doha are less likely to offer work-based pension schemes that not only encourage saving and investing, but can make it compulsory. The need to plan privately affects almost every employee in Qatar.
Time = Money
Fortunately, it’s not all bad news, especially for those still with time on their side. Time provides a great benefit to the organised investor: compound returns.
If you were to start saving $1,000 a month at age 25 and earned a 7% per annum return, by age 65, you’d have $2,624,813. Start saving at age 35, however, and even if you increase the amount to $1,333 (so your total contributions by age 65 are identical) you’d end up with only $1,626,624 – very almost a million dollars less![boxify cols_use =”1″ cols =”2″ position =”right” order =”none” box_spacing =”10″ padding =”10″ background_color =”#3c3c3c” border_style =”solid” ]
Seven habits for a highly successful retirement
- Start young. And if you can’t start young, start now.
- Avoid the pain of reducing your disposable income by increasing your regular savings level with every pay rise.
- Decide what you can afford – in your early 20s this may be very little indeed. In your 30s and beyond, it may (and probably should) be at least 15-20% of your salary.
- Spend wisely to save wisely: eating regularly is wise; for most people eating regular ten-course Michelin-starred tasting menus is not.
- Select investments in line with your attitude to risk – the aim of an investment plan should be to reduce anxiety, not to increase it.
- Stay on track – make your savings plan automatic, for example using a direct debit.
- Review your plan at least annually – circumstances can change: your plan should change with them.
Reacting to the market
Often, when it comes to investing, doing nothing is the best possible advice. During times of market volatility, for example, long-term rational investment plans can be overcome by emotion, and investors can be punished by panic-driven selling at the worst possible time or by buying based on excitement at rising (i.e. suddenly more expensive) stock prices. The desire to do something – anything – rather than sit back, uncomfortably trying to resist the sirens’ calls, can have very real, and very expensive, consequences. These include not only the short-term costs involved in trading, but the longer-term costs of failing to achieve our financial goals, like retiring at a certain age, or funding a child’s education.
At other times, however, doing nothing is the worst mistake we can make – with consequences that can haunt our financial dreams for years to come.
Nowhere is this more obvious than when it comes to planning for our futures, with many of us disinclined to sacrifice a small amount of luxury today for a more secure tomorrow. Unless there’s a large inheritance on the horizon, a quick comparison between the number of years available to save an element of our earnings and the number of years we have left to spend what we manage to save should give most of us cause for concern.
There are rarely any guarantees when it comes to retirement. We could die before we get there. We could find ourselves with a family to support. We could end up living in a different country. We may even win the lottery along the way. The one thing we can be sure of, though, is that almost no one starts planning for it soon enough; retirement simply isn’t something your typical 20-something spends much time thinking about.
Simple, but not easy
Achieving future financial freedom is simple, but it’s not easy. It involves investing more of today’s surplus income for the long-term, starting immediately. However, this requires reducing our disposable income, which is painful – it has the same short-term emotional effect as a pay cut. It also requires placing a value on an unknown future benefit and comparing that to a known cost today, something our brains are not well-equipped to do. And – if we don’t make the investment automatic – it means remembering to do this on a regular basis, which as anyone who’s tried to establish a new habit without a clear routine knows, is pretty much impossible.
Paul Davies is a Chartered and Certified Financial Planner for Guardian Wealth Management. He has been saving for his future since his very first paycheque, though still spends too much on brunch.
We address various aspects of Working in Qatar in this series, including finance, laws, HR development. Write to us if there is a particular subject you are interested in and would like to read about.