Investing principles for your retirement in Spain

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Investing retirement in Spain

Please note that this article is over six months old. While Blevins Franks takes care to make sure that information is accurate on the date of publication, some content may change over time. You should not rely on the accuracy of legislation and tax information in this article; take professional advice for your circumstances.

Thinking of investing for your retirement in Spain? We look at some of the principles and strategies you can take to maximise your chances of successful investment – in the most tax-efficient way possible.

Committing to investments can sometimes seem a little daunting, especially if unpredictable world events have a short-term, but significant impact on the markets. However, you can take steps to better position yourself in your investment journey. A fundamental principle is understanding that your portfolio is very personal. It should be built around your unique circumstances, risk appetite, and long-term goals.

Moving to a new country, from the UK to Spain, for example, is a major change. For anyone relocating – even more so if you are doing so on your retirement – a portfolio review should be high on the list of priorities to ensure their savings and investments are optimised for their new life in Spain.

Time in the markets – not ‘timing’ the markets

Remember, investing to yield the best returns often proves to be a marathon, not a sprint. ‘Chasing candles’, a term given to those who buy and sell based on market fluctuations for short-term gains, will rarely help you to achieve your long-term financial objectives. The primary failure that could be ascribed to this strategy is how it is often driven by emotion. Having a clear objective to stay in the markets for the long term can negate the effect of short-term volatility.

Warren Buffet said, “Be fearful when others are greedy, and greedy when others are fearful”. This statement may have been offered to show the importance of perspective. While some may claim Buffet does not panic because he is wealthy, others could state that he is wealthy because he does not panic.

A diversified approach

A significant amount of data suggests that a well-diversified portfolio of investments will help you achieve better long-term returns. This is an important point British expatriates in Spain. It may be tempting to stick to UK investments and with assets you are familiar with, but this approach, where your investment capital is concentrated in one area, potentially increases risk.

It is important to remember that different assets and regions generally perform differently. A diversified portfolio can help to mitigate the drop in value of a particular investment, asset type, sector or region, or even offset the loss with the gain of another to bring overall profit.

It is good to familiarise yourself with all options – from sustainable projects with an ethos you support to tax-efficient structures that will help you to maintain the lifestyle you are used to. If you feel a little unsure about how best to structure your portfolio for a life in Spain, taking specialist advice can help.

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Avoiding FOMO

The fear of missing out (FOMO) can be a strong motivator for making bad decisions.  Unexpected bull runs in a region or sector, or sharp market rises hyped up by journalists and commentators, can create a strong desire to join in rather than risk regretting that you did not take the opportunity.  The problem is often that it has already happened; you are too late – you may have bought at or near the market peak. Just because a particular asset or sector experiences rapid, short-term growth, there is no guarantee it will continue. Quite the contrary, a market correction often takes place shortly after an event such as this, causing the price to drop as quickly as it had risen as the market or sector has been over-inflated.

A leading cause of FOMO is the ‘buzz’ generated around a particular asset, usually via the internet and social media, but it rarely comes from an expert source.  This can lead people to make impulse decisions to invest in a concentrated way, rather than have the reduced risk a diversified portfolio can bring.

Tax-efficient investing for retirement in Spain

As mentioned, it is important to structure your investments specifically around your new circumstances, objectives, time horizon and risk tolerance, and this also includes taxation. The way you hold investments can make a surprising difference in how much tax you pay. You need to understand the Spanish tax regime – and there are tax-efficient opportunities available to residents of Spain.

One of the more popular options is a Spanish-approved life assurance contract, which acts as a wrapper for a conventional portfolio. With a policy such as this in place, no tax is payable on income derived from the underlying asset until withdrawal, and even then, only the gain would be liable to tax.

You can learn more about Spanish taxes by downloading our free guide.

Taking personalised advice

Investing for a comfortable retirement in Spain can be an exciting endeavour with the right guidance. Blevins Franks has investment experts who work closely with our in-house tax specialists and advisers. For over 45 years, we have been helping UK nationals with their retirement to Spain. Our advisers are based locally and have a deep understanding of the Spanish tax regime, and the opportunities that may be available to you.

Contact Blevins Franks today.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.