By Portugal team
This article is published on: 21st August 2025
Making the move to Portugal can be an exciting journey, but have you thought about the best way to fund your new life and make your money last?
If you are considering the best ways of investing your personal funds or pension investments, here are some planning tips to ensure you do not run out of money.
If you have not already made the move to Portugal, then taking advice early gives you the opportunity to take advantage of the pre-planning opportunities in your current country of residence and post-move planning you can enjoy when you become a Portuguese tax resident. This can put you in a much more favourable financial position and avoid any unexpected taxes.
The first step is to have a good awareness of your likely investment time horizon – we find that clients generally have a pessimistic view, thinking in years rather than the more likely scenario of decades.
According to the UK’s Office for National Statistics a female aged 65 now has an average life expectancy of 88 and a 25% chance of living to 94 years old. A time horizon of over two decades leads to a completely different investment strategy than a portfolio that exists for only several years.
Risk is a subjective issue and there are many definitions of what risk actually is. The confusion surrounding risk tends to stem from a misunderstanding between risk and volatility. One view is that risk is permanent loss of capital, whereas volatility is the degree to which values move up and down.
As a rule, we find that most consider shares as “risky” and cash in the bank as “safe”. But if we define risk as the probability of permanent capital loss, would these definitions hold up?
We know that cash in the bank is likely to reduce in real terms because of inflation i.e. you will lose money over time, whereas investment in high quality company shares have demonstrated that, over the medium to long term, they protect you from inflation. In that case, would shares not be defined as lower risk and cash as higher risk?
What is considered “sensible” is based on two factors: 1. likely investment returns based on your risk tolerance and 2. your objectives for the funds as a whole and whether you are comfortable gradually “eating into” your original investment capital.
As an example, if you invest €1m and are achieving a return of 5% and taking €50,000 (5%) income, then your original investment amount will remain constant.
Some clients may worry about depleting their original investment but this isn’t necessarily a bad thing if it is done in a controlled way. Continuing our example above, assuming the same investment growth rate of 5% but you want to take €70,000 (7%) income each year, then your capital will decrease by 2% each year – although your original investment is reducing, it is very controlled and a 2% each year reduction will still provide you with 50 years of funds.
Based on the above, if cash isn’t an appropriate long-term investment, how do you put together an investment portfolio that protects you over the longer term?
This comes down to investing in the right mix of shares, bonds, cash, property and commodities etc. and the different blend of these investments will be determined by your situation and objectives; it is personal to each individual and family.
In the context of choosing the right investment mix, be aware of the concept of lifestyling. This is an automated switch process that is designed to move clients out of what are considered more risky assets into lower risk assets as retirement or an income date approaches.
This process is flawed on two levels. Firstly, as explored above, there is a question mark over what is considered risky and secondly, the time frame over which the investment is active. Many may find their whole portfolio has been moved into bonds/cash when they may have another two or three decades for the funds to last.
Many investors will retain a portfolio based on their home country e.g. those from the UK will retain a UK based portfolio which will tend to be biased to UK based shares and bonds.
This may not be the best approach going forward based on two issues, 1. the policy will invariably be sterling denominated leading to unnecessary currency conversions and exchange rate risk based on the sterling/euro rate and 2. the UK market has historically lagged other international markets resulting in underperformance for investors – to illustrate this, over the last 10 years, the UK market has grown by 98.68% whereas the world index has grown by 176.21% and the US market by a staggering 258.18%.
Minimising the tax “drag” on investment returns plays a huge role in your overall financial success.
A large part of controlling tax is how you structure your investment and pensions at outset. You are able to invest directly or through the use of structures such as pensions, companies, trusts and bonds. The most appropriate structure will vary according to each family’s position and objectives.
The level of fees paid for advice, investment and pensions structures can also have a dramatic effect on your long-term position. Ensure you have a clear understanding of fees and that they are explicitly stated.
DIY in financial terms can be disastrous, especially when considering the complexity of cross border tax, investment, pension and currency issues. Take advice from the right people: ensure you are seeking Chartered level advice from a well-regulated and established firm.
With over 35 years’ experience, Debrah Broadfield and Mark Quinn are Tax Advisers and Chartered Financial Planners specialising in cross-border advice for expatriates. Contact us at: +351 289 355 316 or portugal@spectrum-ifa.com.
