Gbp Sterling

[chiang mai]

Some members on this board have said that the future for Sterling looks ugly and having just read an article in The Nation (copied from The Observer) it seems the future is nearly here. The article suggests that The Pound is now being sold quite heavily and has fallen over 6% against The Euro in the past month. The BOE is almost certainly going to cut rates in December or January since the UK has high exposure resulting from Sub Prime. The commentator suggested that the currency rot would set in sometime in early 2008.

I wonder what strategies other Brits have who are Thailand based to manage the currency fluctuations and a currency conversion rate that could conceivably hit, I don't know, say sub 60 Baht to the Pound? For my part I have fixed 60% of my GBP funds at 6.5% for two years. The remainder is available at short notice and due to a timing issue I currently have only minimal funds in Baht.

May we keep the focus on Pound Sterling and not USD please.

Sorry to have fallen asleep during the debate on GH's financial strategy but I just read an article in this weeks Phuket Gazette that talked about GBP heading for 50 tp GBP, just in case anyone forgot what the topic is really about! 50 to the Pound, can you fathom it, I'm just really pleased that the phuketpiehouse pie business is brisk.

Just one last point for GH: all I can suggest to you is that you look very closely at the advice of your financial advisor's. For my part it doesn't really matter that financial advisor's in the UK come from the Big 6 or where ever, they all seem to come from the same mold (pun intended). It's a great feeling to have those facilities provided as a part of en ex pat package, been there and done that, but the outcome reality is very different. How may UK linked IFA's, regardless of who they are employed by are willing to advise that you switch currencies out of GBP and why do you think that is - interested in your personal financial welfare, my foot in their bum!

[GuestHouse]

I've not read a counter argument to the points I am making that has any details attached.

I've given examples of:

• UK Tax free savings
  
• UK Tax funding of Pensions
  
• UK Tax Exemption from Capital Gains
  
• UK Secure Trust Laws
  
• UK Secure Control over Willed Estates
  
• UK protections of financial laws
  
• The dangers of moving your wealth out of your home country currency
  
• The fact that there are wide ranges of investment vehicles that allow investors to take advantage of overseas markets and ecconomies while maintaining their wealth in the secure legal framework the UK offers.
  

Combined these offer a great range of options for keeping your money working for you, with no tax loss, and hence efficiently increasing net worth of your wealth. - A great hedge against exchange rate changes AND because of the first rate raft of financial protections the UK offers your wealth remains secure.

Having made this case I don't see any hard arguments against any of those points - Even when the big guns of the Phuket Gazette are brought in.

[Naam]

I've not read a counter argument to the points I am making that has any details attached.

i don't really have a counter argument GuestHouse, just the remark that your personal finances seem to be in a range where you can avoid that the taxman takes a big bite. but... not everybody is as lucky as you!

[BalthazarBeefheart]

I've not read a counter argument to the points I am making that has any details attached.

i don't really have a counter argument GuestHouse, just the remark that your personal finances seem to be in a range where you can avoid that the taxman takes a big bite. but... not everybody is as lucky as you!

I really think our man in Saudi has hijacked this topic with his naive stance. The fact is with his garage extension and free expert financial advice he has no need to be concerned with the fate of GBP.

I wonder if the Phuket Pieman or others who so kindly alerted me to this impending dilemma have noticed what currency pair will produce significant returns maybe in the next few months enough to cover a few years tax free savings ?

Oh but I speculate maybe better I put my dosh into SIV's like my financial adviser says - that way down and outs can get on the property ladder and have their own garage extensions.

50 lashes Burkha boy and thanks cos now I finally know why I left the UK.

Cheers BB

[chiang mai]

I've not read a counter argument to the points I am making that has any details attached.

i don't really have a counter argument GuestHouse, just the remark that your personal finances seem to be in a range where you can avoid that the taxman takes a big bite. but... not everybody is as lucky as you!

I really think our man in Saudi has hijacked this topic with his naive stance. The fact is with his garage extension and free expert financial advice he has no need to be concerned with the fate of GBP.

I wonder if the Phuket Pieman or others who so kindly alerted me to this impending dilemma have noticed what currency pair will produce significant returns maybe in the next few months enough to cover a few years tax free savings ?

Oh but I speculate maybe better I put my dosh into SIV's like my financial adviser says - that way down and outs can get on the property ladder and have their own garage extensions.

50 lashes Burkha boy and thanks cos now I finally know why I left the UK.

Cheers BB

Yes, it would be good to get back to the original topic especially since I seem to be coming across more and more commentary from IFA's and others regarding their thoughts as to how far Sterling might fall against other currencies - I'm afraid the consensus for the fall is growing and the perceived extent of the fall is increasing and for those Brits here in Thailand that are not in GH's fortunate position of not having to care about this fact, this could mean a big change in strategy as far as living in Thailand is concerned. I recall when USD/Baht went from 43(ish) to its now current level, many of our American cousins here in Thailand suffered a similar pain and the, "I'm leaving" stories seemed to abound.

But what to do about it? Well, any hedge out of GBP into a more stable currency will involve a loss in income since the yield on GBP is presently one of the highest around. That means that if the Brit in Thailand who is reliant on GBP yield income will need to spend capital until such time as Sterling bottoms and the yield returns. Frankly, if the extent of the fall is to be a further 20% it may just be worthwhile converting a significant amount of GBP into your destination currency (Thai Baht) in the knowledge that your GBP equivalent will always hold/increase value and can be changed back again later, if required. Not sure!

[sonicdragon]

I've not read a counter argument to the points I am making that has any details attached.

I've given examples of:

• UK Tax free savings
  
• UK Tax funding of Pensions
  
• UK Tax Exemption from Capital Gains
  
• UK Secure Trust Laws
  
• UK Secure Control over Willed Estates
  
• UK protections of financial laws
  
• The dangers of moving your wealth out of your home country currency
  
• The fact that there are wide ranges of investment vehicles that allow investors to take advantage of overseas markets and ecconomies while maintaining their wealth in the secure legal framework the UK offers.
  

Combined these offer a great range of options for keeping your money working for you, with no tax loss, and hence efficiently increasing net worth of your wealth. - A great hedge against exchange rate changes AND because of the first rate raft of financial protections the UK offers your wealth remains secure.

Having made this case I don't see any hard arguments against any of those points - Even when the big guns of the Phuket Gazette are brought in.

As I see it, there are two themes in your argument-

1. It's better to keep your investmenst in the jurisdiction of the UK (nothing to do with having investments denominated in sterling)

2. It's better (for UK citizens) to keep your investments denominated in sterling.

Obviously the best advice for any particular investor is completely dependent on his/her circumstances and I don't think you can apply a broad brush to everyone. In principle many of your points are good ones, but I stronlgy feel that it would be very bad advice to be applied by all. As counter-points:

- UK tax-free savings. There are many tax-free jurisdictions and in particular there are many that have much simpler tax laws than in the UK.

- UK tax funding of pensions. From my very basic understanding of UK tax laws, in general non-residents will lose tax-relief on their contributions unless they have UK taxable income. In addition, when it comes time for the pension to make payments, tax may be deducted at source depending on your tax status and residency at the time. Also, there is a fairly low cap on the pension fund value, above which tax benefits are lost.

- Tax exemption from capital gains. True, but the exemption is very low.

- UK trust laws. True, but other jurisdictions also have secure trust laws.

- Probate. I don't have any argument against that.

- Protection of UK law - again, other jurisdictions have similar or better protections.

- Dangers of moving your wealth outside your home country currency. This is very much dependent on personal circumstances and your attitude to risk. There should be a clear distinction drawn between the currency in which investments are denominated in, and the underlying investments themselves. In practice this is hard to do (see the next point below). Assuming that you can invest in whatever underlying asset you want to, in sterling, then the alternative is foreign currency debt (ie bank deposits and bonds, and in theory at least even these could be "denominated" in sterling). For conservative-minded expats who are posted overseas temporarily, receive local-currency cost of living benefits, who expect to be moved around by their company, and to eventually return to the UK, then keeping all investments in sterling would be good advice. However, the vast majority of expats do not fall into this category. Thus, even from an asset-liabity matching (ie low risk) perspective some investment in non-sterling assets is advisable. For those who have a more elevated tolerance to risk and who understand arbitrage pricing theory concepts investment in other currencies is almost mandatory.

- The availability of overseas invesetments denominated in sterling. Unfortunately the depth and breadth of sterling capital markets pales into insignificance next to the US$. Try to construct a diversified portfolio of bonds denominated in sterling. Investment trusts, unit trusts, insurance funds etc are an alternative but then you pay high fees, have no control of the underlying assets and in some cases lose the benefit of the underlying foreign currency investment due to active vs passive hedging by the manager. Even UK fund investment will not be able to help you tap some other markets- eg soft commodities.

FWIW, I have around 20% of my net worth in sterling, which enables me to take advantage of the tax benefits currently on offer while also providing some security for the future (eg children's education). To sum up - it all depends on personal circumstances and risk tolerance.

Edited December 17, 2007 by sonicdragon

[GuestHouse]

I really think our man in Saudi has hijacked this topic with his naive stance.

I think you are having trouble hiding your bubbling resentment.

50 lashes Burkha boy and thanks cos now I finally know why I left the UK.

Ooops, there you go, I was right.

------

sonicdragon - Some good points and I'll reply at lunch time.

-----

A point on difference of opinion - I've got my opinion, you have got yours - I don't come here to listen only to people who agree with me. I would hope most people here are the same.

We are discussing a very serious issue in which I think it is imperative that both sides of the argument are heard.

Let's understand why it is important to listen to both sides and not let spite and envy block our ears.

People reading this thread, and advice from elsewhere may be considering moving their life savings - likely at a time of life when they are not able to recover savings by earning a wage if they get there investment plan wrong.

People in this situation need to understand risks - Nothing to do with how much I or anyone else earns - and everything to do with the fact that at a certain time in life we all of us are unable to earn more money to recoup losses.

Now if you think that is hijacking the thread, or going off subject then you have a very narrow view of investment strategy.

Edited December 17, 2007 by GuestHouse

[chiang mai]

Mods - can we rebadge this topic with a heading that reads "A Debate About Guesthouse's Financial Affairs" then the rest of us can start up another thread somewhere else to debate the original topic? Talk about self centered and defensive!

[Naam]

I really think our man in Saudi has hijacked this topic with his naive stance.

I think you are having trouble hiding your bubbling resentment.

50 lashes Burkha boy and thanks cos now I finally know why I left the UK.

Ooops, there you go, I was right.

i wish that all the postings in this thread were in a language i can understand

[cmsally]

I am looking into diversifying into CHY & SGD - small amounts at first.

Can anyone provide links to banks that provide an account service that provides accounts in different currencies with clear information , interest rates, fees etc.

Any recommendations gratefully received.

I am looking for a bank with good communications and accounts that are easy to manage.

I am already with HSBC but they don't tend to have the best interest rates.

[sonicdragon]

I am looking into diversifying into CHY & SGD - small amounts at first.

Can anyone provide links to banks that provide an account service that provides accounts in different currencies with clear information , interest rates, fees etc.

Any recommendations gratefully received.

I am looking for a bank with good communications and accounts that are easy to manage.

I am already with HSBC but they don't tend to have the best interest rates.

I don't know what CHY is. Maybe you mean CHF ? Or maybe you mean CNY ? Anyway, bear in mind that differnt banks requirements for funding (and consequently the rates theu offer depositors) changes over time so consequently the best rates today may not (and probably will not) be the best ones next month. Anyway, unless HSBC is particularly bad I would recommend staying with them. FWIW I have CHF, CNY and SGD deposits with Citibank and Wing Hang bank in Hong Kong - the rates are comparable - however the *published* rates are often lower than what you can actually get (unless the amounts are very small) - this is often the case with Citibank/HK.

[cmsally]

I am looking into diversifying into CHY & SGD - small amounts at first.

Can anyone provide links to banks that provide an account service that provides accounts in different currencies with clear information , interest rates, fees etc.

Any recommendations gratefully received.

I am looking for a bank with good communications and accounts that are easy to manage.

I am already with HSBC but they don't tend to have the best interest rates.

I don't know what CHY is. Maybe you mean CHF ? Or maybe you mean CNY ? Anyway, bear in mind that differnt banks requirements for funding (and consequently the rates theu offer depositors) changes over time so consequently the best rates today may not (and probably will not) be the best ones next month. Anyway, unless HSBC is particularly bad I would recommend staying with them. FWIW I have CHF, CNY and SGD deposits with Citibank and Wing Hang bank in Hong Kong - the rates are comparable - however the *published* rates are often lower than what you can actually get (unless the amounts are very small) - this is often the case with Citibank/HK.

Thank you - sorry I meant CNY!

Unfortunately it seems that the interest rates for these currencies are all really low.

Makes the NZ$ seem more appealing!

[chiang mai]

Some readers may find it helpful to understand the markets current perception of the direction of Sterling hence the commentary below from a Forex and Futures Co. that has tended to be fairly accurate in the past. Further commentary on this subject can be seen in the BOE FMC minutes:

" Yesterday morning, the sterling started the session on weak footing as the poor RICS house price survey raised more doubts on the health on the UK housing market going into 2008. However, the sterling managed to limit the damage and the break lower in EUR/USD later in the session also dragged EUR/GBP lower and the pair again (for the third time this week) attacked the 0.7165/55 area. However; also this time, the move was blocked in that area.

Longer-term, the risk is for more pro-active BoE action/interest rate cuts while more bad news from the UK housing sector contains the risk of more sterling losses over time. So, we remain sterling sceptic in the medium-to-longer term.

Short-term, we hoped that a cooling in global market tension could help the sterling for a technical recovery that would allow Sterling sellers to jump in at slightly better levels. However, over the previous days sterling rebounds were almost immediately blocked, suggesting that the downside in EUR/GBP is still well protected. Yesterday, the pressure on sterling again cooled slightly, but we still see no big sterling comeback anytime soon. We continue to see up-ticks in sterling/downticks in EUR/GBP as an opportunity to sell sterling".

[chiang mai]

I am looking into diversifying into CHY & SGD - small amounts at first.

Can anyone provide links to banks that provide an account service that provides accounts in different currencies with clear information , interest rates, fees etc.

Any recommendations gratefully received.

I am looking for a bank with good communications and accounts that are easy to manage.

I am already with HSBC but they don't tend to have the best interest rates.

I don't know what CHY is. Maybe you mean CHF ? Or maybe you mean CNY ? Anyway, bear in mind that differnt banks requirements for funding (and consequently the rates theu offer depositors) changes over time so consequently the best rates today may not (and probably will not) be the best ones next month. Anyway, unless HSBC is particularly bad I would recommend staying with them. FWIW I have CHF, CNY and SGD deposits with Citibank and Wing Hang bank in Hong Kong - the rates are comparable - however the *published* rates are often lower than what you can actually get (unless the amounts are very small) - this is often the case with Citibank/HK.

Thank you - sorry I meant CNY!

Unfortunately it seems that the interest rates for these currencies are all really low.

Makes the NZ$ seem more appealing!

When trading GBP into another currency in say HK or Sing there is usually a bank requirement in each country to convert into the local currency before the final conversion is made into the destination currency. Whilst HSBC HK offers multi-currency accounts the need to convert twice remains. Has anyone found a way around this other than to fly to HK or Sing and open an account in the destination currency?

[Naam]

Mods - can we rebadge this topic with a heading that reads "A Debate About Guesthouse's Financial Affairs" then the rest of us can start up another thread somewhere else to debate the original topic? Talk about self centered and defensive!

i think that the financial affairs of GuestHouse are related to the topic of this thread which is GBP. notwithstanding this fact my personal view is that the "commandments" he follows stand on wrong footings/assumptions and bear no relation to nowadays reality.

no offence meant GuestHouse!

[Naam]

When trading GBP into another currency in say HK or Sing there is usually a bank requirement in each country to convert into the local currency before the final conversion is made into the destination currency.

says WHO?

[sonicdragon]

When trading GBP into another currency in say HK or Sing there is usually a bank requirement in each country to convert into the local currency before the final conversion is made into the destination currency. Whilst HSBC HK offers multi-currency accounts the need to convert twice remains. Has anyone found a way around this other than to fly to HK or Sing and open an account in the destination currency?

There is no such requirement. You are misinformed. All major currencies are directly tradeable with each other.

[chiang mai]

When trading GBP into another currency in say HK or Sing there is usually a bank requirement in each country to convert into the local currency before the final conversion is made into the destination currency. Whilst HSBC HK offers multi-currency accounts the need to convert twice remains. Has anyone found a way around this other than to fly to HK or Sing and open an account in the destination currency?

There is no such requirement. You are misinformed. All major currencies are directly tradeable with each other.

Strike the word traded and replace with the word exchange. Every time I convert currencies at HSBC HK the conversion ALWAYS involves an exchange into HKD first. Case in point, transfer GBP to HK and request conversion into THB (not a sensible things to do of course) and the rate reflects conversion into HKD first. When this point queried by the Premier account rep she confirms.

Edited December 17, 2007 by chiang mai

[sonicdragon]

When trading GBP into another currency in say HK or Sing there is usually a bank requirement in each country to convert into the local currency before the final conversion is made into the destination currency. Whilst HSBC HK offers multi-currency accounts the need to convert twice remains. Has anyone found a way around this other than to fly to HK or Sing and open an account in the destination currency?

There is no such requirement. You are misinformed. All major currencies are directly tradeable with each other.

Strike the word traded and replace with the word exchange. Every time I convert currencies at HSBC HK the conversion ALWAYS involves an exchange into HKD first.

I don't bank with HSBC but it certainly is not a requirement at the Citibank or Wing Hang Bank.

[GuestHouse]

As I see it, there are two themes in your argument-

1. It's better to keep your investments in the jurisdiction of the UK (nothing to do with having investments denominated in sterling)

2. It's better (for UK citizens) to keep your investments denominated in sterling.

Well sort of, but my actual concern is Risk v Consequences and Risk v Benefits – Are the risks of moving out of Sterling Understood and are the benefits what they are presumed to be?

I also think that it is a mistake to say ‘I’m never going back to the UK’ I have made my arguments on reasons why any UK expat living in Thailand might at some time have to do just that.

With this in mind I see two major risks to a UK Expat moving his savings out of Sterling:

1. Moving money out of the safe jurisdiction of the UK (I don’t think anyone is disagreeing that the UK is safe jurisdiction)

2. Investments made in a third (or more currency can go both ways, leaving the investor short on Bht and £) and in a double jeopardy of not being able to remain in Thailand and not being able to go back to the UK.

Obviously the best advice for any particular investor is completely dependent on his/her circumstances and I don't think you can apply a broad brush to everyone.

That is true, but all investors need to consider risk – and as a general rule as we get older risk becomes more important – Or rather the likely negative consequences of taking risk become less bearable.

In principle many of your points are good ones, but I strongly feel that it would be very bad advice to be applied by all.

I agree applying advice suited to an individual to all would be foolish – but I also think that ignoring the real risks of money trading is more foolish

As counter-points:

Thanks for the counter points, they are a welcome change from the personal attacks others are offering in the absence of reasoned arguments.

- UK tax-free savings. There are many tax-free jurisdictions and in particular there are many that have much simpler tax laws than in the UK.

Yes there are, but what advantage do they offer over the UK such that it is worth taking on the other risks that come with moving out of one’s home currency.

- UK tax funding of pensions. From my very basic understanding of UK tax laws, in general non-residents will lose tax-relief on their contributions unless they have UK taxable income.

Not entirely true, it is possible to maintain tax contributions while overseas. Yes paying taxes is a means of maintaining tax contributions to pensions – or put another way, making payments to pensions is a means of mitigating UK taxes (and providing a secure income for the future).

In addition, when it comes time for the pension to make payments, tax may be deducted at source depending on your tax status and residency at the time.

The UK law currently allows 25% of an individual’s pension fund to be taken as a tax free lump sum. Pension payments are of course taxed – but before anyone moves money out of a UK pension they should take serious advice on the risks of doing so. Pensions held in UK laws are very very secure, not just for the individual but also for their family.

Also, there is a fairly low cap on the pension fund value, above which tax benefits are lost.

The cap on Tax Free UK personal pension contributions (2007/2008) is £225000 per person per year and a life time maximum contribution of £1.6 million - I don’t call that low, not even ‘fairly low’

Tax exemption from capital gains. True, but the exemption is very low.

A family of four can achieve £36800 per year of tax free capital gains, a man and wife £18400 year – I don’t call that low either.

UK trust laws. True, but other jurisdictions also have secure trust laws.

Yes there are, but what advantage do they offer over the UK such that it is worth taking on the other risks that come with moving out of one’s home jurisdiction?

- Probate. I don't have any argument against that.

- Protection of UK law - again, other jurisdictions have similar or better protections.

Better or comparable? And what advantage do they offer over the UK such that it is worth taking on the other risks that come with moving wealth out of one’s home jurisdiction?

- Dangers of moving your wealth outside your home country currency. This is very much dependent on personal circumstances and your attitude to risk.

Yes it is dependent upon personal circumstances, age and earning capacity being two issues commonly effecting expats in Thailand, but it has nothing to do with “Attitudes to Risk” – The dangers remain whatever your attitude to risk is. - The issue is can an investor sustain the losses that may come with the risks he takes?

There should be a clear distinction drawn between the currency in which investments are denominated in, and the underlying investments themselves. In practice this is hard to do (see the next point below). Assuming that you can invest in whatever underlying asset you want to, in sterling, then the alternative is foreign currency debt (ie bank deposits and bonds, and in theory at least even these could be "denominated" in sterling). For conservative-minded expats who are posted overseas temporarily, receive local-currency cost of living benefits, who expect to be moved around by their company, and to eventually return to the UK, then keeping all investments in sterling would be good advice.

Agreed – But ‘expect to eventually return to the UK’ might not be entirely correct – ‘Wishing always to keep the UK option open’ is perhaps more nearer the truth (See next point).

However, the vast majority of expats do not fall into this category. Thus, even from an asset-liabity matching (ie low risk) perspective some investment in non-sterling assets is advisable. For those who have a more elevated tolerance to risk and who understand arbitrage pricing theory concepts investment in other currencies is almost mandatory.

I think we need to understand what category the vast majority of expats in Thailand fall into – I suspect (and it is only a suspicion) that the vast majority hold ‘Non Immigrant Visas’ and as such have no real tenure in Thailand, I suspect few are working and most are living on fixed incomes from pensions/savings/property rental income. These characteristics define the limits of the consequences of risk that each investor can tolerate.

Arbitrage pricing theory (even if you have access to a live arbitrage model and can understand what it is telling you ) is fine, but what needs to be understood is where is the expat going to go if they need to leave Thailand? If he has sold up his assets back home, moved his savings off shore and withdrawn his pension he may very well not be able to go home.

- The availability of overseas investments denominated in sterling. Unfortunately the depth and breadth of sterling capital markets pales into insignificance next to the US$. Try to construct a diversified portfolio of bonds denominated in sterling. Investment trusts, unit trusts, insurance funds etc are an alternative but then you pay high fees, have no control of the underlying assets and in some cases lose the benefit of the underlying foreign currency investment due to active vs passive hedging by the manager. Even UK fund investment will not be able to help you tap some other markets- eg soft commodities.

Again, the question is not ‘how much diversity is available elsewhere’ but is enough diversity available from the UK to meet a UK investor’s needs and are the benefits of moving out of the UK worth the risks?

FWIW, I have around 20% of my net worth in sterling, which enables me to take advantage of the tax benefits currently on offer while also providing some security for the future (eg children's education). To sum up - it all depends on personal circumstances and risk tolerance.

Yes it does depend upon personal circumstance and risk tolerance – But risk tolerance is not ‘how much risk is an individual emotionally/psychologically/intellectually able to tolerate? – but what are the maximum negative consequences of taking a risk that an individual can sustain?

If anything, against that measure of risk tolerance, a person living on a fixed income in Thailand where they are for all practical purposes denied access to the job market and hold little more than ‘guest status’ has a far lower tolerance of risk than most would readily accept.

I accept that is an uncomfortable truth for some.

Edited December 17, 2007 by GuestHouse

[GuestHouse]

Mods - can we rebadge this topic with a heading that reads "A Debate About Guesthouse's Financial Affairs" then the rest of us can start up another thread somewhere else to debate the original topic? Talk about self centered and defensive!

i think that the financial affairs of GuestHouse are related to the topic of this thread which is GBP. notwithstanding this fact my personal view is that the "commandments" he follows stand on wrong footings/assumptions and bear no relation to nowadays reality.

no offence meant GuestHouse!

Let's be right about this - I have at no time given any information on my personal finances - I have however discussed 'investment strategy'.

If the distinction between the two is lost on anyone here then I hope they'll excuse me if I say I'll be ignoring their advice.

[sonicdragon]

As I see it, there are two themes in your argument-

1. It's better to keep your investments in the jurisdiction of the UK (nothing to do with having investments denominated in sterling)

2. It's better (for UK citizens) to keep your investments denominated in sterling.

Well sort of, but my actual concern is Risk v Consequences and Risk v Benefits – Are the risks of moving out of Sterling Understood and are the benefits what they are presumed to be?

Well, they are by me, but I can't speak for anyone else.

I also think that it is a mistake to say 'I'm never going back to the UK' I have made my arguments on reasons why any UK expat living in Thailand might at some time have to do just that.

I agree with you. I go back to the UK every year for at least 2-3 months.

With this in mind I see two major risks to a UK Expat moving his savings out of Sterling:

1. Moving money out of the safe jurisdiction of the UK (I don't think anyone is disagreeing that the UK is safe jurisdiction)

2. Investments made in a third (or more currency can go both ways, leaving the investor short on Bht and £) and in a double jeopardy of not being able to remain in Thailand and not being able to go back to the UK.

Those were the 2 points I made above, weren't they, or am I misunderstanding you ?

Obviously the best advice for any particular investor is completely dependent on his/her circumstances and I don't think you can apply a broad brush to everyone.

That is true, but all investors need to consider risk – and as a general rule as we get older risk becomes more important – Or rather the likely negative consequences of taking risk become less bearable.

Diversifying ones investments in terms of other currencies and asset classes can achieve a reduction in risk. This is part of my point.

In principle many of your points are good ones, but I strongly feel that it would be very bad advice to be applied by all.

I agree applying advice suited to an individual to all would be foolish – but I also think that ignoring the real risks of money trading is more foolish

Not too sure what you mean by "money trading". I'm talking about diversification.

As counter-points:

Thanks for the counter points, they are a welcome change from the personal attacks others are offering in the absence of reasoned arguments.

- UK tax-free savings. There are many tax-free jurisdictions and in particular there are many that have much simpler tax laws than in the UK.

Yes there are, but what advantage do they offer over the UK such that it is worth taking on the other risks that come with moving out of one's home currency.

Diversification reduces risk, it doesn't increase it. And some people want to take more risk in order to benefit from higher possible returns. Depending on what investments you make, it can be as risky or riskless as you want. For example people living in Thailand could make investments in THB, or a currency highly correlated with it, with the sole intention of removing the risk in the fluctuation of sterling while they remain in thailand. This is less risky than keeping 100% in GBP. Others who want to take on more risk can put their money in Australian mining stocks (for example).

- UK tax funding of pensions. From my very basic understanding of UK tax laws, in general non-residents will lose tax-relief on their contributions unless they have UK taxable income.

Not entirely true, it is possible to maintain tax contributions while overseas. Yes paying taxes is a means of maintaining tax contributions to pensions – or put another way, making payments to pensions is a means of mitigating UK taxes (and providing a secure income for the future).

I'm not sure of the point. If you don't have UK taxable income, then you won't get any tax relief, will you ?

In addition, when it comes time for the pension to make payments, tax may be deducted at source depending on your tax status and residency at the time.

The UK law currently allows 25% of an individual's pension fund to be taken as a tax free lump sum. Pension payments are of course taxed – but before anyone moves money out of a UK pension they should take serious advice on the risks of doing so. Pensions held in UK laws are very very secure, not just for the individual but also for their family.

Again, I'm not sure of your point. When I left the UK I stopped making contributions to my scheme, and I now have another scheme in Hong Kong where the tax regime is quite a lot more friendly.

Also, there is a fairly low cap on the pension fund value, above which tax benefits are lost.

The cap on Tax Free UK personal pension contributions (2007/2008) is £225000 per person per year and a life time maximum contribution of £1.6 million - I don't call that low, not even 'fairly low'

Obviously that's a matter of personal opinion.

Tax exemption from capital gains. True, but the exemption is very low.

A family of four can achieve £36800 per year of tax free capital gains, a man and wife £18400 year – I don't call that low either.

Again, a matter of personal opinion.

UK trust laws. True, but other jurisdictions also have secure trust laws.

Yes there are, but what advantage do they offer over the UK such that it is worth taking on the other risks that come with moving out of one's home jurisdiction?

The advantages of lower tax and better choices of investments.

- Probate. I don't have any argument against that.

- Protection of UK law - again, other jurisdictions have similar or better protections.

Better or comparable? And what advantage do they offer over the UK such that it is worth taking on the other risks that come with moving wealth out of one's home jurisdiction?

Better and comparable (and worse in some cases) depending on the the types of investments and the jurisdiction in question - Switzerland, Singapore, Hong Kong, USA for example.

- Dangers of moving your wealth outside your home country currency. This is very much dependent on personal circumstances and your attitude to risk.

Yes it is dependent upon personal circumstances, age and earning capacity being two issues commonly effecting expats in Thailand, but it has nothing to do with "Attitudes to Risk" – The dangers remain whatever your attitude to risk is. - The issue is can an investor sustain the losses that may come with the risks he takes?

Attitude to risk has everything to do with it. Risk is correlated with returns. Those willing to take more risk can potentially benefit from higher returns.

There should be a clear distinction drawn between the currency in which investments are denominated in, and the underlying investments themselves. In practice this is hard to do (see the next point below). Assuming that you can invest in whatever underlying asset you want to, in sterling, then the alternative is foreign currency debt (ie bank deposits and bonds, and in theory at least even these could be "denominated" in sterling). For conservative-minded expats who are posted overseas temporarily, receive local-currency cost of living benefits, who expect to be moved around by their company, and to eventually return to the UK, then keeping all investments in sterling would be good advice.

Agreed – But 'expect to eventually return to the UK' might not be entirely correct – 'Wishing always to keep the UK option open' is perhaps more nearer the truth (See next point).

However, the vast majority of expats do not fall into this category. Thus, even from an asset-liabity matching (ie low risk) perspective some investment in non-sterling assets is advisable. For those who have a more elevated tolerance to risk and who understand arbitrage pricing theory concepts investment in other currencies is almost mandatory.

I think we need to understand what category the vast majority of expats in Thailand fall into – I suspect (and it is only a suspicion) that the vast majority hold 'Non Immigrant Visas' and as such have no real tenure in Thailand, I suspect few are working and most are living on fixed incomes from pensions/savings/property rental income. These characteristics define the limits of the consequences of risk that each investor can tolerate.

Quite so - and that is, once again, a matter of personal circumstances and tolerance to risk. I can't speak for anyone else, obviously. I'm a Permanent Resident of Hong Kong and travel between HK and Thailand regularly and own modest homes in the UK, in HK and in Thailand. My wife is Thai but since we travel a lot I don't bother with visas for Thailand, and I have an APEC Business Travel Card which gives me 90 day visa-free entries. I am gainfully employed in HK and don't expect to retire for many years to come. I don't consider the possibility of being unable to stay in Thailand when I retire, as being a big problem.

For people who are in the position you outlined above I, like you, would not advocate moving their entire savings out of the UK. However, unlike you, I do think that some of their risk can be mitigated by doing so. As a simple example, even though tenure in thailand might not be certain I'm sure most of those people can say with *reasonable* certainty that they will remain here for (say) 2 years. With that in mind, keeping 2 years worth of expected outgoings in THB or a correlated currency, could be advisable in my mind.

Arbitrage pricing theory (even if you have access to a live arbitrage model and can understand what it is telling you ) is fine, but what needs to be understood is where is the expat going to go if they need to leave Thailand? If he has sold up his assets back home, moved his savings off shore and withdrawn his pension he may very well not be able to go home.

I'm not talking about live arbitrage models, I'm talking about concepts of arbitrage pricing theory, one of the main results of which is diversification. Your latter point is quite correct in my opinion - I am certainly not advocating that anyone should sever their financial ties with the UK altogether.

- The availability of overseas investments denominated in sterling. Unfortunately the depth and breadth of sterling capital markets pales into insignificance next to the US$. Try to construct a diversified portfolio of bonds denominated in sterling. Investment trusts, unit trusts, insurance funds etc are an alternative but then you pay high fees, have no control of the underlying assets and in some cases lose the benefit of the underlying foreign currency investment due to active vs passive hedging by the manager. Even UK fund investment will not be able to help you tap some other markets- eg soft commodities.

Again, the question is not 'how much diversity is available elsewhere' but is enough diversity available from the UK to meet a UK investor's needs and are the benefits of moving out of the UK worth the risks?

As I have tried to explain above, moving some assets out of the UK can serve to reduce risk, not to increase it. For those that want to increase risk, they can choose whether the potential benefits outweigh the perceived risks - that's what markets are for.

FWIW, I have around 20% of my net worth in sterling, which enables me to take advantage of the tax benefits currently on offer while also providing some security for the future (eg children's education). To sum up - it all depends on personal circumstances and risk tolerance.

Yes it does depend upon personal circumstance and risk tolerance – But risk tolerance is not 'how much risk is an individual emotionally/psychologically/intellectually able to tolerate? – but what are the maximum negative consequences of taking a risk that an individual can sustain?

To me, that's the same thing.

If anything, against that measure of risk tolerance, a person living on a fixed income in Thailand where they are for all practical purposes denied access to the job market and hold little more than 'guest status' has a far lower tolerance of risk than most would readily accept.

Yes, I would agree with that. This is what I mean about personal circumstances and risk tolerance.

I accept that is an uncomfortable truth for some.

[jackr]

Anyone reckon Sterling will see a drastic upturn against the Baht or weakening of the Baht over the next few days? Poised to buy a house and a little bit concerned over the last couple weeks.

XE currently doing 1.00 GBP = 61.2840 THB, with BB down to about 67.5.

:D

[JimsKnight]

Hmm, if the pound sterling falls to the pits of the 50s then I dread to consider what the US$ will fall to.

Lets not forget that the on-going election will also have an influence as well.

Yeah GH likes to talk alright but what he says is usually relevant to the Topic, although I just think we need more people posting on the very important topic.

I think that the tourism industry would will grind to a standstill the way some of the doom mongers are making out the £s demise next year...

Edited December 17, 2007 by JimsKnight

[stevemiddie]

Hmm, if the pound sterling falls to the pits of the 50s then I dread to consider what the US$ will fall to.

Lets not forget that the on-going election will also have an influence as well.

Yeah GH likes to talk alright but what he says is usually relevant to the Topic, although I just think we need more people posting on the very important topic.

I think that the tourism industry would will grind to a standstill the way some of the doom mongers are making out the £s demise next year...

Its all a conspiracy. Same as the moon landings.

Pound will go to 100 baht tomorrow. No probs.

[cmsally]

Anyone reckon Sterling will see a drastic upturn against the Baht or weakening of the Baht over the next few days? Poised to buy a house and a little bit concerned over the last couple weeks.

XE currently doing 1.00 GBP = 61.2840 THB, with BB down to about 67.5.

:D

Same for me, for transfers today rate is around 67.5Bt

My choices are to transfer in the next couple of days and figure on cutting my losses because it will drop further or to hang on and wait for an upturn to 69Bt.

I have about 6 weeks but am not optimistic for the end of that period. I am trying to think of factors that might give an extra Baht or more for a few days!?

[GuestHouse]

It seems to me Sonicdragon that we agree on more than we disagree on - perhaps more in scale than anything else. For example:

What is a low tax free allowance and what is not a low tax free allowance is of course a personal view - My view is that tens of thousands of £ tax free allowances are not small amounts and that tax benefitting pension allowances of hundreds of thousands of £ per year are not small numbers either.

But I do think you are wrong with respect to Risk and what is tolerable -

Yes it does depend upon personal circumstance and risk tolerance – But risk tolerance is not 'how much risk is an individual emotionally/psychologically/intellectually able to tolerate? – but what are the maximum negative consequences of taking a risk that an individual can sustain?

To me, that's the same thing.

These are quite patently not the same thing.

An individual may feel quite comfortable taking a risk, but not be able to sustain the losses that the risk may very likely give rise to (hence the word Risk).

The maximum negative consequences of a risk are not - the guy is going to be upset that his risk turned sour - rather they might very well be (depending on risk) 'Loss of life savings, loss of property, ability to maintain themselves in Thailand or return to their home country'

And of course that would be cause for being 'upset', but a secondary consequence loosing out when taking an inappropriate risk.

I'm also curious that you frame Risk in terms of possible benefits and ignore the possible downside.

Like yourself I'm a long way off retirement, and when I tick the boxes I find I am able to take a significant risk (if I so choose) - but this thread is being read by many people, at least some of whom are by age/income/health etc not in a position where it would be advisable for them to take risks with their savings.

So the discussion of the dangers of risks is important.

[sonicdragon]

It seems to me Sonicdragon that we agree on more than we disagree on - perhaps more in scale than anything else. For example:

What is a low tax free allowance and what is not a low tax free allowance is of course a personal view - My view is that tens of thousands of £ tax free allowances are not small amounts and that tax benefitting pension allowances of hundreds of thousands of £ per year are not small numbers either.

But I do think you are wrong with respect to Risk and what is tolerable -

Yes it does depend upon personal circumstance and risk tolerance – But risk tolerance is not 'how much risk is an individual emotionally/psychologically/intellectually able to tolerate? – but what are the maximum negative consequences of taking a risk that an individual can sustain?

To me, that's the same thing.

These are quite patently not the same thing.

Yes, they are. It just depends on how you define risk and return. These concepts are very well understood and defined within the realms of financial economics (my background), but others may have a different interpretation or understanding that causes disagreements like this.

An individual may feel quite comfortable taking a risk, but not be able to sustain the losses that the risk may very likely give rise to (hence the word Risk).

That's not a very satisfactory definition of risk.

The maximum negative consequences of a risk are not - the guy is going to be upset that his risk turned sour - rather they might very well be (depending on risk) 'Loss of life savings, loss of property, ability to maintain themselves in Thailand or return to their home country'

And of course that would be cause for being 'upset', but a secondary consequence loosing out when taking an inappropriate risk.

...all of which is part of the individuals tolerance of risk.

I'm also curious that you frame Risk in terms of possible benefits and ignore the possible downside.

On the contrary, the possible downsides are included in the very concept of risk itself. The very simplest way I can describe risk (as an economist understands it) is "the variability of outcomes".

Like yourself I'm a long way off retirement, and when I tick the boxes I find I am able to take a significant risk (if I so choose) - but this thread is being read by many people, at least some of whom are by age/income/health etc not in a position where it would be advisable for them to take risks with their savings.

which underlines the point about personal circumstances.

So the discussion of the dangers of risks is important.

On this we agree.

All I can say, again, is that each individual should understand the risks involved in their decisions and make their own determination according to their own situation.

I don't like to speculate on the situations of others, but, while there may be British expats here who would be well advised to keep all their wealth in the UK and in GBP, my guess is that this would be poor advice for the vast majority. And as previously stated I am not advocating a complete withdrawl from the UK and sterling.

[Prakanong]

Hmm, if the pound sterling falls to the pits of the 50s then I dread to consider what the US$ will fall to.

Lets not forget that the on-going election will also have an influence as well.

Yeah GH likes to talk alright but what he says is usually relevant to the Topic, although I just think we need more people posting on the very important topic.

I think that the tourism industry would will grind to a standstill the way some of the doom mongers are making out the £s demise next year...

Was the tourist industry at a halt when the GBP was 40 or below?

Very short term memory or short term visitors we seem to have?

[GuestHouse]

Yes, they are. It just depends on how you define risk and return. These concepts are very well understood and defined within the realms of financial economics (my background), but others may have a different interpretation or understanding that causes disagreements like this.

.....

An individual may feel quite comfortable taking a risk, but not be able to sustain the losses that the risk may very likely give rise to (hence the word Risk).

That's not a very satisfactory definition of risk.

Well if you are going to black cat me with 'the realm of economics being your background'.... As my specialization for which I provide consultancy across the organization I work for is Risk Analysis/Management - I'd be interested to hear your definition of Risk, Consequences, Risk Reduction and Risk Mitigation. As you say, risk is well understood in Financial Economics, the expression borrowed as it is from the well understood field or Risk Analysis (Common theory across a range of activity, including economics).

Saying that that the risk a person feels they can take is the same thing as the risk a person can tolerate in terms of maximum negative consequences is not a good start.

Anyhow, I always think a person who understands a subject can explain his subject in simple terms - the floor is yours.

Risk?