Viewing posts categorised under: Portugal

Falling investment markets

By Mark Quinn
This article is published on: 9th June 2022

09.06.22

Markets have fallen recently with concerns over rising inflation and interest rates and the war in Ukraine. In this uncertain environment, clients are asking me: “should I sell?”, and those with cash to invest are uncertain if now is the right time to commit to investing.

Why do falling investment markets cause concern?
Rather than seeing movements in markets as being completely normal and part of the regular cycle in markets, I believe the media instills fear among investors. I follow the financial news every day and read headlines dominated by talk of slumps, crashes, stagnations, recessions etc. but rarely see positive news stories about investments and markets such as how many global stock markets reached all-time highs in 2021.

This is getting worse with internet-based news as “click bait” headlines are used to prompt us to click through to read these apparently disturbing events.

Humans are bad investors
Our brains are not designed to make sound investment decisions as we are subject to biases and cognitive distortions and our emotions, rather than fact and logic, overly influence our decisions. One of our biggest weaknesses is our loss aversion which can lead to not taking advantage of investing at low prices during market falls.

Professionals versus amateurs
We often see professional investors reacting in an opposite manner to the general public/retail investors. Many retail investors will sell and are fearful when markets fall but professionals will be taking advantage of lower prices and be purchasing investments.

Context for investing
It is important to reassess exactly why you should invest. Most people do so to protect their lifestyle as they want to ensure their investment and pensions maintain their real value after inflation over time – this isn’t possible in cash.

If you are investing for the long term, then you increase your chances of generating longer term growth and we know that, even though markets may go lower in the short term, over the longer term you are “stacking the odds” in your favour.

Time is on your side with investing
Data shows that the risk of stock market investment reduces with the time you spend in the market as you have the ability to weather the short term ‘blips’ in market. For this reason there is a popular stock market adage that time in the market is more important than timing the market.

Holding through downturn
The benefits of holding though short-term falls in the market were highlighted to me recently by Terry Smith, manager of the Fundsmith fund. He gave an example of a share he purchased at the end of 2007 for $7.07 and by 26th February 2008 it had lost almost 40% of its value at $4.28 – this promoted a lot of investor anger at his decision. However, this short term blip is dwarfed by the enormous increase the share price subsequently enjoyed, increasing in value to $172.39 by 4th February 2022. The company was Apple, until just last week the most valuable company in the world.

Tips for investors in this climate

Invest as early as possible and remain invested – act against ‘herd’ instinct
Remove the psychology from investment – draw up an investment plan and stick with it
Minimise tax – one of the biggest eroders of investment returns
Minimize fees on your investments and pensions – another big eroder of returns
Asset allocation – predicting which parts of the market will weather the storm better is difficult, so ensure you have a correctly constructed portfolio which is widely diversified and importantly, has corelation benefits

Buying property in Portugal

By Mark Quinn
This article is published on: 28th May 2022

28.05.22

At the start of the buying process it is essential to sort out your residency status, financials and tax planning before you can buy a property in Portugal.

Our Portugal Manager recently spoke to Rebecca Thomson, Co-founder and Real Estate Consultant at Liberty Real Estate about the simple steps one must take before making the move.

Mark expertly explains how to apply for residency in Portugal, various visas and how to benefit from the NHR scheme.

Non-EU citizens, including the British post-Brexit, who wish to permanently settle in Portugal, must apply for a visa for the right to stay. EU citizens on the other hand have the right to freedom of movement and therefore have an automatic right to stay, so do not need to apply for a visa.

There are several visa options available in Portugal and the most common are the Golden Visa and the D7 visa.

Both visas allow access to the Schengen area, ultimate permanent residence or Portuguese citizenship, and a gateway into the Non Habitual Residence (NHR) tax scheme.

The key difference between the two programs comes down to one of cost versus flexibility. The D7 visa is clearly a lower cost route to Portuguese residency, both in terms of the fees and that there is no investment requirement as for the Golden Visa. However, the D7 route does have substantially longer minimum stay requirements.

So, if you are thinking of making a move to Portugal, or would like to benefit from the available tax incentives, watch the full interview in our informative video below.

Investment management styles

By Mark Quinn
This article is published on: 27th May 2022

27.05.22

There are several different investment management styles to consider and each will have benefits and drawbacks. The key difference are between a managed/active/discretionary route, and a passive/tracker approach, and this can be a divisive area within the investment industry.

In order to put into context the differences between these styles and which approach may be right for you, let’s first look at what a stock market index is.

An index simply measures the performance of a group/basket of shares. For example, the S&P 500 index tracks the performance of the shares in the largest 500 companies in America. As the US market is the largest stock market in the world, and the US is the world’s largest economy, it is often seen as a barometer for the health of global markets in general. The equivalent index in the UK is the FTSE 100 index.

Managed/active management/discretionary
Historically, most private investors would invest through a fund manager. In this way, you would pay an annual percentage fee to an investment institution to actively manage your investment i.e. make the buying and selling decision on your behalf.

The aim of investing in managed investments is to generate better investment returns than the stock market index as a whole, or another appropriate benchmark.

Discretionary investment is a specialist branch of managed investment whereby the manager has a greater range of investment powers and freedoms to make buying and selling decisions without your consent (although always within with the remit and investment powers that you grant at outset).

Over recent years there have been numerous studies to suggest that many fund managers do not achieve their aims of beating their respective benchmarks, and it has led some investors to favour a “passive” investment approach.

Passive or index trackers
Passive investment does not employ a fund manger to make decisions, and instead of trying to outperform the market, you simply ‘buy’ the market as a whole. For example by investing in an S&P 500 tracker, you would effectively be purchasing the top 500 shares in the US stock market.

The key difference between the managed style is cost i.e. whereas a manager may charge between 1-2% per annum to manage your fund, you can access a tracker fund from as little as 0.1% which can make a huge difference to your fund value cumulatively.

Proponents of this approach accept they will only even achieve the return of the market as a whole (with no outperformance) but because you are spending far less in fees, believe they will do better over the longer term.

Proponents of active management on the other hand highlight the drawbacks of the passive approach viz. in a falling market, you will only ever track a falling market, tracker funds “blindly” sell what may otherwise be high quality investments at inopportune times, and that tracker investments can still be complex to understand, such as the difference between ‘synthetic’ versus ‘physical’ tracking methods.

Summary – balance pays
As my previous two articles have demonstrated, tax and investment planning generally involves shades of grey, rather than black and white solutions and in practice we do not believe either approach is the ‘holy grail’.

Rather each management style can offer benefits within a balanced portfolio. Holding passives can reduce the overall cost of your portfolio (thus increasing your net return) and using managed funds can complement by avoiding “blind” automatic sales and potential downside mitigation.

Whichever route you choose, minimising fund fees is crucial as it is the biggest eroder of returns over time.

When to keep ‘unsuitable’ investments

By Mark Quinn
This article is published on: 20th May 2022

20.05.22

A lot of people contact me believing they cannot keep certain investments. As I said in my article last week, it’s all about the subtleties, so let’s look at some examples.

Individual Savings Account
For Non Habitual Residents (NHRs), interest and dividends are tax exempt during the 10-year period but realised gains are taxed at 28%. For non-NHRs, interest, dividends and gains are taxed at 28%.

If your move to Portugal is short-term, or if you are not certain that it will be your long-term home, then there is a case for retaining your ISAs. Although you cannot add to them whilst non-UK resident, you can continue to hold them, and once you return to the UK they resume their tax-efficiency.

A planning point you may wish to consider if you have a stocks and shares ISA is to ‘rebase’ by selling and then immediately repurchasing the same funds within your ISA prior to leaving the UK to ‘wash out’ any taxable gains accrued to the point of your departure. This way, if you did decide to restructure, encash, or withdraw from the ISA as a Portuguese tax resident in the future, there would be litle or no tax to pay in Portugal.

As a general guideline, if you believe your move to Portugal is long-term (as a rule of thumb, 5 years or more) then restructuring and starting an investment vehicle that is suitable for residency in Portugal would make sense for greater tax efficiency, amongst other reasons. If this is the case, planning well in advance is advantageous, as there is no tax on ISA closure for UK residents.

Investment bonds
‘Non-compliant’ bonds are those that are not officially recognised by the Portuguese authorities. Usually all premiums paid into ‘compliant’ bonds are taxed, albeit at a very small amount. This effectively registers their tax favoured status and guarantees the tax breaks, assuming all conditions are met.

There may be a case to retain a non-compliant structure if you do not intend to make withdrawals because there is no tax to pay if nothing is taken out. However, you should still review the plan as there may be lower cost or newer options out there. If you do withdraw funds, we have seen some non-compliant bonds benefit from the same tax treatment as compliant bonds, but there is no guarantee.

Encashment would be a good idea if the policy originates from a blacklisted jurisdiction as tax on gains is punitive at 35%, rather than 28% or less depending on how long the policy is held. Also, if you want to guarantee the tax advantages and policy qualification, you will want to ensure you are holding a Portuguese compliant product. Other points that might affect the decision are how succession laws are affected, policy flexibility, currency and fund choice, and the consumer protection offered.

UK pensions
Pensions are a more complex area of planning and if you get it wrong, it could have consequences for your future lifestyle or ability to support yourself in retirement.

You should always seek personalised qualified advice when addressing your retirement planning, but as some food for thought:

You may wish to retain your UK pension if you have no lifetime allowance issues or do not plan to take withdrawals during your lifetime. Again, you should still review the pension regularly. You might look transfer to an EU based scheme if your total pension benefits are close to, or more than, the UK lifetime allowance (currently £1,073,100), or you are concerned about currency fluctuations and want certainty. You might even withdraw completely if you have NHR, no UK Inheritance Tax or succession planning considerations and want tax-efficiency post-NHR in Portugal.

There are of course many other investments or structures out there such as premium bonds, EIS, VCTs, trusts, QNUPS etc. that may or may not work for you in Portugal and I suggest you discuss your options with a qualified and experienced professional.

Are you interested in our series of seminars and webinars - sign up here to learn more

When Non-Habitual Residence does NOT work

By Mark Quinn
This article is published on: 20th May 2022

20.05.22

The nuances of advice part 1

Applying for the Non-Habitual Residence (NHR) scheme is generally considered a ‘no brainer’ but as these three cases studies in particular highlight, you must be careful as it can lead to an unexpected and worse outcome.

Case 1 – tax saved £280k
Paul contacted us as he was looking to apply for the NHR program once he moved to Portugal because he was aware of the 10% flat rate of tax applying to pensions.

After analysing the nature of Paul’s pension, and taking into account his other income sources, it transpired that he would actually be worse off by applying for NHR. This was because with the type of pension income he would receive, he would be able to report on the ‘85/15%’ basis in Portugal – this meant that, even if his income fell into the highest income tax bracket of 48%, the highest possible tax rate payable would have been 7.2%. Although 2.8% seems like a small amount to save, because he had a large pension in excess of £1m, this amounted to a significant saving.

In addition, Paul was also unaware that the 25% pension commencement lump sum (previously called tax free cash) that was available to him as a UK tax resident would be lost when he became a tax resident here. By highlighting this to Paul, and by mapping out a timeline for planning, we saved Paul additional tax.

Case 2 – tax saved $700k
George is originally from Australia but currently living in the UK and was looking to relocate to Portugal. His main driver was the ability to draw down his large final salary pension scheme at the flat 10% rate compared with the highest rate of 45% that he would pay as a UK tax resident.

After providing him with an actuarial comparison of the pros and cons of retaining the final salary scheme compared with extracting as a lump sum, George felt transferring the scheme suited his family position better.

On the surface, taking advantage of the 10% flat rate appeared to be sensible planning but we highlighted to George that his non-domicile status in the UK meant that, using the remittance basis of taxation, he could extract the fund in full at less than 3% tax in the UK.

We will continue the planning for George as he transitions from the UK and establish a suitable structure for him when he eventually establishes residency in Portugal.

Case 3 – taxed saved £400k+
Roger and Sue are the beneficiaries of a trust that was established by Sue’s late father many years ago, and this constitutes their main source of income.

As NHR does not benefit trust income, they would have faced a tax rate of 28% on all withdrawals from the trust.

After analysing options, we arranged for the trust to be wound up and distributed to Sue, saving the couple over £400,000 in potential income tax, and arranged a lower cost and lower risk structure that is tax efficient for residents of Portugal. In addition, they managed to maintain an appropriate level of control in terms of how their children benefited from the asset on their death without creating tax issues for them as beneficiaries in their country of residence.

The above cases highlight the importance of speaking with an experienced and regulated cross-border tax adviser. Contact on the form below.

Click here to join our future seminars and webinars

Investment portfolios | The Principles of Success

By Mark Quinn
This article is published on: 18th May 2022

18.05.22

The world of investments can be intimidating, even for the most seasoned investor. Here, we will put aside the jargon and push past the hype of ‘the next big thing’, and instead focus on the key principles that every investor should know when building a portfolio of investments; irrespective of how engaged or involved you wish to be.

Ideally, you should look at your assets as a whole – your pensions, property, savings and investments, rather than at each area or structure in isolation. This way you can apply the principles to your wealth as a whole and be in the best position to potentially meet your financial objectives.

Asset allocation is key to investment success
Asset allocation is the percentage of each type of asset class making up your overall investment portfolio. In turn, asset classes are groupings of similar types of investments such as cash, equities, commodities, fixed income, or real estate.

The key principle behind asset allocation is to include asset classes that behave differently from each other in different market conditions to reduce risk and generate potential returns. For example, if equities are falling in value, certain fixed income assets may be rising.

The goal here is not solely to maximise returns but to blend your holdings to meet your goals, whilst taking the least amount of investment risk. The right allocation for you will depend on several factors such as your willingness and ability to accept losses, your investment time frame, and your future needs for capital – unfortunately, there is no one size fits all.

Many studies have shown that asset allocation is the most important driver of portfolio returns, so getting this first step right is critical.

Diversification to reduce risk
Once you have decided on the right asset allocation for you, you must then pick the individual types of holdings or investments within each asset class. Each asset class is broken down into subclasses, for example, fixed income includes holdings such as fixed deposits, gilts and government or corporate bonds.

It is not enough to simply own each type of asset class; you must also diversify within each asset subclass. For example, taking corporate bonds which is a type of fixed income asset class, you can hold them in many different types of companies, industries, currencies, countries, or long or short term.

Rebalancing
As assets perform differently over time, the initial percentage asset allocation will deviate over time. A typical example is the huge increase in the US stock market over the last couple of years which, whilst good for investors’ returns, will have increased the level of share exposure. This increase in the value of equity holdings because of the sustained rise will lead to increased risk across the portfolio as a whole.

This can be solved by regular rebalancing to ‘reset’ the portfolio to your original asset allocation. This involves selling holdings that are overweight and buying ones that are undervalued.

Rebalancing also provides the ideal opportunity to revisit your financial goals and risk tolerance, and to tweak your asset allocation accordingly.

Long term perspective and discipline
As humans, our emotions can lead to poor decision making when it comes to investing. Decisions that seem logical in daily life can result in poor investment returns, with many retail investors selling through fear at the very point they should be buying at lower prices, and conversely, buying at much higher prices during a gold rush.

It is vital for most investors to keep a disciplined approach as it is easy to get caught up in the daily noise of the markets.

Minimise costs and maximise tax efficiency
Einstein described compounding as the 8th wonder of the world and the effect of compounding applies to fees. A charge that might seem small at the beginning can turn into a significant cost over time and research has shown that lower-cost funds tend to outperform in the longer term.

As a simple example, assume a €100 investment and no growth. After 10 years, an annual charge of 2% will result in €82, a 0.2% charge would result in €98.

Focus on minimising fund, structure and adviser fees. In the world of investing, more expensive does not necessarily mean better.

Tax is an often-overlooked cost, which if minimised can lead to the same positive compounding effects over time. This is done by ensuring that your investment portfolio is structured correctly for your resident status, and it might be different planning for normal residents, Non-Habitual Residents, or depending on if your move to Europe is for the rest of your life or if you intend to return to your home country in the future.

Withdrawal strategies
If you are taking income from your investments, you should consider the way in which you do this and the order. Not only will this affect the type of investments you hold within your portfolio, but it could also affect how you hold your portfolio and provide tax planning opportunities or pitfalls.

Focus on total return
With interest rates at historically low levels, it is difficult to rely solely on income returns in this investment environment. The total return is a truer picture of performance and takes into account the capital appreciation as well as the income received.

Be boring!
To quote Warrant Buffet, one of the world’s most successful investors: “Lethargy, bordering on sloth should remain the cornerstone of an investment style”.

Do not try to chase returns or the trends in investments – stick to tried and tested assets. At Spectrum, we only use investments that have worked over the long term, are easy to understand, daily tradable and transparent.

Join our seminars and webinars in Portugal

5 reasons cash might not be king

By Mark Quinn
This article is published on: 16th May 2022

16.05.22

In the words of Warren Buffett, “The one thing I will tell you is the worst investment you can have is cash”.

If one of the world’s most successful investors believes this, let’s look at some of the reasons why holding large amounts of cash is bad for long-term financial planning.

Inflation
We all need access to cash for daily spending and emergencies, so it is important that you hold enough cash on deposit for if the boiler breaks! But holding large amounts of cash over long periods is damaging when the interest rates are well below the rate of inflation.

To illustrate this in real terms, if your annual spending was £10,000 in 2011, you would need £12,968 in 2021 to make the same purchases as inflation averaged 2.6% p.a. However, during that same period, the average savings account interest rate was 1.6% p.a. so the same £10,000 in a bank account would only have grown to £ 10,160.

Low-interest rates
Interest rates offered by banks to customers rarely beat inflation, so using this as a long-term savings strategy is not ideal.

According to the most recent data available provided by the Bank of England and Portugal, the average UK deposit interest rate offered in December 2021 was 0.3% and the average rate in Portugal was 0.06% as at December 2020.

With inflation currently sitting at 5.4% and 3.3% for the UK and Portugal respectively, we can see that inflation will rapidly erode the value of your savings.

Taxation
One of the commonly overlooked factors when making any investment is the tax consequence. In the UK there are great tax-free savings vehicles such as ISAs, but here in Portugal, the choice is much more limited but that does not mean that tax-efficient savings are not available.

For those with NHR, there is not so much of a concern as foreign earned interest is tax-free. However, for normal residents, all interest paid is taxable at 28%. Please note, interest from bank accounts held in blacklisted jurisdictions such as Guernsey, Jersey and the Isle of Man is always taxable at 35%.

Investments usually outperform cash in the long-term
Most people feel more comfortable holding cash, maybe because they do not understand the stock market or they are reluctant to seek financial advice.

It is true, investing in the stock market does carry some risk and you will experience volatility which can be unnerving, but over the long-term markets have outperformed cash.

The Barclays Equity Gilt Study 2019 analysed cash, equity and gilt performance from 1899 to 2019 and it found that £100 invested in cash in 1899 would be worth £20,000 in 2019; a stark contrast to the £2.7m it would worth if invested in equities over the same period.

We might not all live to see returns over 120 years, but even with the global health and economic crisis today, many global stock markets finished the year higher than they started. For example, Morningstar’s Global Markets index was up nearly 15% by mid-Dec 2021, whilst banks were offering returns below 1%.

Dividends
Stocks and shares pay dividends in addition to the expectation that their price will increase. Cash only pays interest, and with inflation, there is a near-certain expectation our cash value will erode in real terms over time.

Lastly, what are the alternatives? Simply put, investing. What you should be investing in and where will be dependent on several factors such as your goals and the risk you can, and are prepared to, take. If you would like to discuss your options, please get in touch.

Are you interested in our seminars & webinars about tax & financial planning in Portugal?

Financial adviser in Portugal

By Mark Quinn
This article is published on: 19th April 2022

19.04.22

“British expats, your financial adviser may well be a bandit!”, this was the title of a 2016 article by Jason Butler in the Financial Times. He painted a depressing picture of the state of the advisory market for expats and some of his key observations still hold today.

So what are some of the issues you need to be thinking about when you are seeking a Financial Adviser in Portugal?

Fees
One of the main points from the FT article was the importance of focusing on fees and charges. Butler states that unlike the UK, which abolished commission in 2012, many expat destinations suffer from “eyewatering expensive financial products laced with enormous commission payments”.

It is therefore important to have a clear understanding of what you are being or will be charged, and importantly that these are fully disclosed. This is something not all advisers have done and is fast becoming an issue for them as a result of the MIFID II directive which is forcing them to disclose their charges.

Qualifications
The other area of focus was on qualifications, with Butler citing a lack of qualifications in general. In fact, in Portugal, there is no minimum qualification requirement so in theory, anybody can set themselves up as ‘advisers’.

In the UK, the minimum standard to advise is ‘level 4’ but the gold standard is ‘level 6’, which is Chartered status. These higher qualifications are awarded by the CISI and CII (UK) and the average pass rate for the Chartered status examinations was just 56% in 2020.

You should also seek advisers who are tax qualified, or at the very least work with a firm or individual that is, and who fully understands cross-border issues. This is important given the relatively complex nature of expats’ financial affairs.

Download my financial guides to living in Portugal

So, why might you need a financial adviser?
If you are considering setting up or reviewing a complex structure such as a pension or investment, looking to put inheritance and succession planning in place, or restructure your affairs for tax efficiency, you should seek professional advice so you do not end up with something that is unsuitable or has unforeseen negative implications.

Your adviser’s role is to help you achieve your objectives by advising you on the best course of action to take and if necessary, research the market to find suitable structures that can be tailored to your personal situation.

How to choose your adviser and advisory firm?
Firstly, you should shop around and meet with several advisers to discuss your circumstances. Advisers will usually offer an initial discussion free of charge and this will give you the opportunity to evaluate them, their firm and gauge if you can work together long term.

Some initial questions you should be considering are:

Is the firm regulated?
Are they able to offer impartial advice or are they restricted in what companies and products they can offer due to exclusivity agreements?
Do they have indemnity insurance?
Is the adviser qualified? If so, to what level?

You should also do your own research but bear in mind, some firms are known to remove any negative reviews from the internet.

What if you already have a financial adviser in Portugal?
David Blanchett, the head of retirement research for Morningstar Investment Management, wrote the following for the Wall Street Journal in February 2020, “the adviser-and advice-who was a good fit for you 10 years ago, may no longer be a good fit now. Even if you have no major complaints about the service you have been getting, it is a good idea to ‘shop around’ every few years. You may not realize that you are missing out on better advice or costs until you do a comparison. Conversely, you may reinforce that the adviser you have still is the best fit.”

Where am I resident and where should I be paying tax?

By Mark Quinn
This article is published on: 12th April 2022

12.04.22

There is a lot of confusion around the difference between residency, tax residency, Non-Habitual Residency and domicile so this week I will try and cut through this complexity.

Legal residence
Legal residence is the right to reside in a country. So, if you are an EU citizen, you have the automatic right to reside in any other EU country without the necessity for a visa. If you are coming from outside the EU, you must apply for a visa to establish your residency rights.

Legal residence is important as it determines how long you are allowed to spend in a country and your right to benefits such as healthcare and social security. Legal residence however does not impact or determine your tax status.

Tax residency
Generally, tax residency is determined by your physical presence in a country and Portugal, along with many other countries, uses the 183-day rule for determining tax residency.

Understanding your tax residency is important because it determines which country has the taxing right over you and can avoid double-taxation issues when you have links to more than one jurisdiction.

It is possible to have legal residence in Portugal, but not actually be a tax resident e.g. if you have the right to stay in Portugal but you do not spend enough time in Portugal in a given year to be considered tax resident.

Non-Habitual Residence (NHR)
NHR gives successful applicants a special tax status in Portugal for 10 years, but its name is somewhat misleading, as you must be a resident to apply for it.

‘Non-habitual’ actually refers to the requirement that you must not have been resident in Portugal in the 5 years prior to application, so it is aimed at attracting new people to Portugal.

Domicile
Domicile is something that is often confused with residence. It is a very complex area, but the very loose definition of domicile is ‘where you are considered to originate from’. It is a common-law concept and is most likely to be a consideration for British nationals, individuals married to British nationals, or those who are not British but either hold assets in the UK or spend a considerable amount of time in the UK.

Your domicile does not affect your income tax position in Portugal but it can have tax implications, most notably UK Inheritance Tax. (We will elaborate on domicile in next week’s article).

Myths

Many people are under the misconception that, as long as they are paying tax somewhere, they are meeting their obligations but it does not work that way. It is crucial you have a clear understanding of where you are resident to avoid being taxed in more than one jurisdiction
Registering yourself in Portugal does not automatically make you a tax resident. It is determined by your physical presence, so it is important to check your tax residency every tax year, as it could change
Your nationality or citizenship does not change by coming to live in Portugal and becoming resident, although you do have the option of applying for Portuguese citizenship after 5 years

Planning

Have a clear understanding of the tax residency rules of the country you are leaving. e.g. you can be tax resident in the UK by spending as little as 16 days there, or if leaving Spain a presumption of residence can remain if your family or your economic interests remain there
Prior to departing your current country of residence, utilise any remaining annual allowances and pension contributions, consider reorganising your affairs via inter-spouse transfers, and unwind any structures free of tax that may otherwise be taxed on arrival in Portugal
It may also be possible to create periods where you are not considered tax resident in any country or establish residency in another country prior to moving to Portugal for tax planning purposes

Mark Quinn is a Chartered Financial Planner with the Chartered Insurance Institute and Tax Adviser, qualifying with the Association of Tax Technicians.

Download my financial guides to living in Portugal

Measuring investment performance

By Mark Quinn
This article is published on: 11th April 2022

11.04.22

There are several different ways of measuring your investment performance, and I will run through some simple tips to allow you to dig deeper into your portfolio.

Firstly, do not forget to factor in fees such as adviser and management fees and structure costs when looking at returns. I have seen the cost of some investments run as high as 4% p.a. through hidden commissions and explicit charges. These have been disguised by strong market performance over recent years, but are likely to be exposed if we experience leaner years in markets in the future.

Simple benchmarking
A simple and quick method of comparison is looking at interest rates on cash accounts. If your investment returns are generating the same returns as cash on deposit, why are you taking the market risk?

Similarly, take into account inflation. If you generate a 3% return and inflation is 2%, your net return is just 1%; is this what you thought you were achieving?

Lastly, look at what similar passive investments have done. These types of funds simply track a stock market index and are inexpensive. If you are paying a fund manager to outperform and add value by trying to achieve higher returns, have they done this?

More in-depth methods

Market indices
A market index tracks the performance of a group of shares or other investments e.g. the S&P 500 index which tracks the performance of the largest 500 shares in America. They can be a useful barometer for the ‘health’ of an investment market as a whole but it is important to use them appropriately.

For example, you cannot meaningfully compare the performance of the S&P 500 index (100% shares) with a portfolio that consists only 40% of shares. Similarly if you are comparing a euro denominated portfolio with the US market which is denominated in dollars, then again this is not necessarily an appropriate comparison.

The downsides of using indices as a comparison are therefore addressed by the use of:

Peer group
A peer group allows you to compare investments that are similar in nature e.g. a specific class of investments or geographical region, and because you are comparing “like for like” it can be a more meaningful comparison tool.

Morningstar.com is a particularly useful tool in this respect and can guide investors with regard to an appropriate benchmark and peer group.

Quartile rankings
These are used to compare returns of investments in the same category over a period of time. Investments in the top 25% are assigned quartile rank 1, the next 25% quartile 2 etc.

They can be useful in tracking consistency – what is important is not the quartile ranking in any one period, but they allow you to track trends over multiple periods and time frames.

There is no one way, or right way, to compare performance and you will likely need to combine several measures to get a more accurate reflection of performance. Even more importantly, this should be done regularly to ensure you are doing all you can to achieve your financial goals. Finally, you should take into account the risk you are taking to achieve a set level of return, and this will be the focus of a future article.

If you would like to discuss your performance or how best to build your own portfolio of investments, please get in touch.