Financial planning in Hong Kong is essential – it is one of the most expensive cities in the world, and salaries are also high, so for expats it can be an excellent opportunity to build up a nest-egg. Unfortunately, many people, because they don’t plan, end up just spending their high salaries and have nothing to show for it when they return home.
Here are 10 basic tips to point you in the right direction:
- Have a financial plan. Many people fail right here – they’ll do their best to save and invest, but without a clear target to measure yourself against, it’s hard to move forward.
- Start saving now. If you’re not saving yet, you need to start now. If you are already doing so, carry on. Saving early is best because it gives you a longer period of time for your funds to compound, allows you to take on slightly more risk in order to pursue higher returns in investing them, and means you have to save a smaller percentage of your pay check. Once you can afford housing, food and medical care, you should be in a position to save – no excuses!
- Have an independent advisor: financial planning is not rocket science, but an independent advisor can provide an outside perspective, keep you accountable to your plan, save you from silly mistakes and also provide lots of tips on optimizing things like taxes. Look for a financial planner in Hong Kong.
- Have insurance. Bad things do happen sometimes, and you don’t want to wreck your finances or leave your family in need because you were unlucky. Most people have health insurance provided by their employer, but you should also consider if you need life insurance and critical illness cover.
- Minimize your taxes through tax and estate planning. Specific types of investment wrappers such as QROPS – qualifying recognized overseas pension schemes, or trusts, together with proper documentation (for example, a will, in the case of estate planning) may allow you to reduce your tax bill.
- Watch out for the fees. With interest rates at record lows, those couple of percent in fees that used to be standard may well eat into all of your returns. Nowadays there are several low-fee investment options available, such as passive ETFs – exchange traded funds, for example. What may seem like a tiny difference, once you consider the effect of compounding over decades, will be huge.
- Be careful with debt: most expats in Hong Kong don’t face issues like credit card debt, but even lower-cost debt such as student loans and mortgages may have higher rates than you are earning on your investments, in which case it makes sense to pay them down before saving.
- Have a diversified portfolio: those tragic stories you sometimes read about of people who lost all their money always have one thing in common – they made one big bet. They had all their money in one fund, or one real estate deal, or one bank. On a different scale, consider how many people have suffered from Brexit simply because all their assets were denominated in Pounds. Ensure that your savings are diversified across asset classes (stocks, bonds and real estate), assets and managers within those classes (e.g. stocks of different companies and different fund managers) and ideally also currencies and countries.
- Review your finances regularly: taxes, regulations, prices, interest rates and the performance of managers all change over time, as do your own needs and circumstances. It is sometimes tempting to think ‘this worked well for me so far, so I’ll stick with it’, but that is not always a good decision in finance – as the caveat on investment offerings goes, ‘past performance is not an indication of future returns’.
- Finally, forget the market: the biggest determinant of whether you will achieve a comfortable retirement is whether you planned and saved appropriately, and within your investment portfolio itself, allocation between asset classes (stocks, bonds, etc.), fees and taxes will be much more important determinants of returns than any individual trade. If you do all of the above, rest assured that you’re taking better care of your finances than the vast majority of people. So, forget the coffee-machine chat about the hot stocks, or the attempt at day-trading in your spare time. If your objective is to maximize your returns, all that time is best spent on your core business – whether it is some extra hours at work, a freelance gig, or even a start-up.
In conclusion, financial planning in Hong Kong is essential. These 10 common-sense tips cover the most important points to watch out for, but even so, it may be worthwhile engaging a professional financial planner in Hong Kong to provide you with customized advice.