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Posted by portugalpress on May 17, 2018

As humans we have evolved to be wary of the new and to stick comfortably with what we know. This makes evolutionary sense, but does it make great investing sense?

Among early humans, there were so many unknowns and those brave souls who tried eating new plants, hunted in new territory, or approached a previously unencountered animal, risked reward but also risked illness, injury or even sudden death.

This mentality continues for investors today: most are wary of the new and, as such, have a bias towards markets that are closer to home. Yet the truth is that this primitive, risk-averse mentality is ill-suited to the sophisticated global financial markets of the 21st century.

Overall, it is better to diversify across global markets and to spread risk. This means that however tempting it might be to weigh your portfolio towards UK securities, the native UK investor would do better to also attempt to diversify further afield, so that their investments are spread not only across multiple asset classes, but also across multiple countries and regions.

This is not to say that it is always a bad idea to invest in familiar markets, particularly when the numbers indicate that this may be a prudent path, but it might not be the best idea to invest in familiar markets always. For example, The Telegraph newspaper recently published details of price to earnings (p/e) ratios for various stock markets across the world.

The good news for expat investors in Portugal is that the country was among the leaders for value for money, with good scores for both price to earnings (calculated by taking a company’s share price and dividing it by its earnings) and cyclical adjustment (which takes into account historical earnings) as well as dividend yields. Of course, past returns are no guarantee of future performance but this does indicate that the discerning investor can be confident of finding value somewhere in the Portuguese market.

Amongst the findings, Portugal’s value for money was something of an anomaly in Western Europe. Emerging Europe, including Eastern Europe and Russia, as well as Japan and China, were the other places ranked as being among cheaper markets. It was bad news for US-centric investors though; the United States was the only major market or region ranked as expensive across all measures.

However, the data was less encouraging for those who only feel comfortable with portfolios heavily weighted towards UK investments, which ranked as expensive on both price to earnings ratios and dividend yield measures. Despite this, the UK was cheaper than it had been in the previous year.

This does not mean that the UK should be avoided by investors; far from it, the UK presents plenty of investment opportunities and it is simply a case of investing wisely at a time when the UK is entering a phase of political and economic uncertainty which is being shaped by Brexit negotiations. There can be little doubt that the UK remains home to many established world-class companies, as well as many innovative start-ups, including those operating in the tech industry.

However, certain UK investments – for example, ISAs and Venture Capital Trusts (VCTs) – are unlikely to be such a good idea for the expat in Portugal. For a start, they may lose their tax-efficiency once you become resident in Portugal. As such, you should speak with your adviser about finding alternative investments to bring tax benefits and the possibility of flexible income.

Whatever the case, diversification is critical to producing positive returns over longer periods. Nobody should ever be over-reliant on a single market, so, be an adventurer, hunt in new territory, try out the new berries and look out for new species amongst the bulls and the bears.

Advice from Blacktower
The Blacktower Group was formed in 1986 and has earned its reputation providing wealth and management and pensions planning advice to clients in the UK as well as those who are resident abroad. Our proven and bespoke service can help you realise your financial goals. With an office in the Algarve and Cascais and representatives services expats all over Portugal and Madeira, we can help you today by calling 289 355 685 or 214 648 220, email info@blacktowerfm.com or visit www.blacktowerfm.com

By Manuela Robinson
Manuela Robinson is the Joint-Country Manager of Blacktower in Portugal. With offices in Quinta do Lago, Cascais and representation in Madeira.
info@blacktowerfm.com | 289 355 685
www.blacktowerfm.com
Blacktower Financial Management (International) Limited is licensed by the Gibraltar Financial Services Commission. Licence 00805B. Blacktower Financial Management Limited is authorised and regulated in the UK by the Financial Conduct Authority.

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