What to do with our money in this awful time?
January 31, 2017 4:29 AM   Subscribe

We are American expats living in the UK. We have some money in pounds and dollars. We need to figure out what to do in these crushing times.

We've lived in the UK for a while, and have saved a fair bit of money in pounds, which was (is?) largely intended for a large deposit on a flat in London. (Over 50% deposit -- I'm really nervous about borrowing too much money.) . We also have a considerable amount of money (for us) in US stocks that we bought before we moved about six years ago. The money for the deposit is doing nothing at all in a bank account because we're too nervous to invest it (also weird rules about expats investing have stymied us.) We have two children. We currently rent, but have long wanted to buy, esp. as our mortgage would be considerably lower than our rent.

We've ignored our financial situation for too long, and now the horribleness that's The News has made me second guess everything. We were planning on buying very soon in London -- yes, some might say that's mad -- but we can afford the place we're interested in, and we are really worried about getting priced out of neighborhood that we love near a great school.

And also, I guess I feel kind of unsafe and having a home no one could kick us out of (well, legally) just feels emotionally safe, even if intellectually it doesn't sound great given that the London market is famously overinflated. (Though we've been waiting for it to pop for years and years now -- which could mean it's on the horizon, or could mean it's never going to happen, or not dramatically in our neighborhood.) Should I be talked out of property?

Also, any thoughts on what to do with US stocks and dollars? We were thinking of cashing out some of it but have no idea how much. Pound is weak -- so put dollars into pounds? Half and half? Should we just hoard the cash in a bank account? That emotionally doesn't feel good to me, but maybe it's the right thing to do.

We could also put down less of a deposit and hoard some of the remaining cash, but that also feels silly, borrowing money at a greater interest rate (though still very low rates in the UK) than we're getting on it sitting in the bank account.

We don't plan on moving back to the US for a long time, if ever -- a decision unrelated to Trump, but now feels even more like the right decision for us. Our visa situation is sorted. The flat we're looking to buy would suit us for 5-10 years, and probably more.

Even if you don't have any specific guidance, just general guidance around what to do with money in times of uncertainty would be helpful.
posted by heavenknows to Work & Money (5 answers total) 3 users marked this as a favorite
Some thoughts more than advice, from another long-term US expat:

I think weak sterling is a good opportunity to move dollars to sterling. I would be careful of remittance basis for tax if that is an issue for you - it is for me. But bringing over cheap dollars and buying London strikes me as good value. Sterling could weaken further - the biggest threat is disastrous Brexit.

Remittance may or may not be the 'weird rules' you allude to, but it's probably better not to think of your house as an investment, strictly speaking. It's home and it should feel welcoming and a happy place for you and your family that you don't have to sweat. Paying less mortgage than rent is attractive. If the market is weaker and you don't make a big gain on the house, well, all the better - the US won't tax the gain out from under you. I would agree that this is a great time (still) to borrow sterling. UK interest rates really only have one way to go. Make sure you stress-test your borrowing. Hell, the banks will do that for you. But would you be happy paying 5.5% like we were a decade ago?

London housing market has slumped since Brexit, but arguably still remains an attractive market for its constituency of wealthy expats who see it as a safe haven. I think the government unlikely to kill this cash cow and those aren't the kind of immigrants the UK government wants to freeze out with Brexit. What will it take to end the structural shortage of housing in the metro London market? I don't see that - whatever it is - emerging soon.

Up to now, the US stock market has done quite well with all this, though who knows where it goes if the economy is sunk in a mire of protectionism and tit-for-tat politicking. When the dollar is strong and the stock market is strong, you're making great returns in sterling terms, so having some exposure in the near term might make sense. I think the big question mark for the US is getting corporate tax reform through. I think that would unleash a wave of domestic corporate creativity and investment that's been held as offshore earnings for decades.

Consider domicile rules, too. If you live in the UK for 17 out of 20 years, the UK government considers you domiciled for inheritance tax, etc. You imply that you've only been here for six years, so you have some way to run with this, but be careful of being painted into a corner and then taxed out of it.
posted by sagwalla at 5:03 AM on January 31, 2017 [1 favorite]

In trading terms, you will always have a need for shelter in the future. Currently, that need is unhedged - you’re buying it at spot prices on an annual basis. You have the opportunity to lock in the current market rate for long term shelter supply, which is considerably cheaper than the spot rate & replaces the uncertainty over future housing costs with interest rate uncertainty (if you take out a floating rate mortgage). This is why the decision to buy property to live in is different to buying property for investment purposes.

Personally, I would probably leave the US investments alone for the moment. Possibly rebalance a chunk of the cash into a bond fund. Up to you really. Whatever you choose, holding cash long term is a mugs game, unless you’re holding it for a relatively short period for a specific reason which means you can’t take the risk that short term volatility reduces the value of your holdings & the thing you intend to buy is denominated in the currency you’re holding.
posted by pharm at 6:40 AM on January 31, 2017

Buying a home under the circumstances you've described sounds reasonable, but you really need to get competent US & UK tax advice first. It may affect your financial calculus more than you're aware of right now: e.g., you need a clear view of the tax implications if you sell U.S. stocks right now.
posted by praemunire at 10:14 AM on January 31, 2017

Response by poster: This is incredibly helpful -- thanks so much! Good point about taxes, etc. - I hadn't thought of that at all. I think I kind of needed permission to think it was OK to tie up money in a house; sagwalla you're totally right that I shouldn't think of it as an investment (which I don't really -- I just want a home, really.) Still not sure what to do with the dollars but will investigate the taxes; we'll probably end up cashing out some but keeping the bulk of it. Thanks again!
posted by heavenknows at 12:07 PM on January 31, 2017

There are reputable companies that advise US ex-pats and handle their shares/equities as well as handling taxes both US/UK for expats through one accountant in this country. They do the maths to figure out what you need and make sure you have it, dependant on your risk aversion level and they administer a multiple choice test for the FCA to help determine this. Their aim is to simplify everything for the client. All your finances on one page. I found their rates standard and reasonable. It has become much more complex since new regulations and many financial/brokerage type institutions won't touch a US taxpayer with a bargepole. If you want a particular referral to one, me-mail me.
posted by claptrap at 2:42 AM on February 1, 2017

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