Making your money work for you is the cornerstone of any retirement planning.

Investment planning can be quite a complicated subject, and indeed there are many financial advisers that seek to make things all the more complicated in order to discourage the laymen investor.

In reality, investment planning can be distilled down to some simple concepts and followed passively by anyone.

The core points to understand when setting up an Expat Investment Portfolio are:

- Choosing a Broker - Understanding ETFs - Understanding Passive Funds & Managed Funds - Understanding US Withholding Tax - Choosing Your Asset Allocation

Choosing a Broker

The first step to setting up an investment portfolio is choosing a broker.

The first important distinction to make here is that if you are a US citizen there are many US based brokers that are available to you. Non US citizens have fewer options available and the two seem to be, in my experience, mutually exclusive in so far as US brokerages only allow US Citizens to open accounts, and NON-US Brokerages only allow NON-US citizens to open an account.

For Expats, my research turned up 2 viable brokerages that have access to the main exchanges and allow NON-US citizens to open accounts.

- TD Direct - SaxoBank

The account opening process with SaxoBank was somewhat easier as all documents could be sent off via email.

As I recall, TD Direct, required me to send a notarized copy of my passport to their head office in Luxembourg, at a cost of a few hundred dollars.

I ultimately decided to open an account with SaxoBank, but I must say their customer service has been quite bad with unclear pricing on fees, account restrictions, and lack of clarity in communications.

For Non-US citizens, it would seem we are stuck with a slew of expensive and sub-par brokerages.

For all their failings, SaxoBank remain the only viable option that I would recommend... until a better broker comes along.

Points to look for in choosing an online broker are:

- Access to wide range of markets - Range of products, including ETFs, Stocks, etc. - Low commission on trades - Minimum account balance below your investment level.

Understanding ETFs

ETFs are Exchange Traded Funds, as their name suggests they are Funds that are Traded on Public Exchanges.

What that means is you can buy and sell the funds exactly like you would buy and sell a stock.

This has numerous benefits, such as the increased liquidity of the funds meaning you can open and close positions quickly and easily and also has no "minimum investment" amount such as many mutual funds have.

ETFs can be considered like a basket of underlying securities, traded as one item.

The underlying components of an ETF can be almost anything, including: Stocks, Bonds, Precious Metals, Real Estate, Mortgages, Commodities, etc.

This allows you to invest in a broad area such as "US tech" or "Developing Markets" and hold a well diversified basket of investments in your target investment.

For most passive retail investors, ETFs are the holy grail that make up the bulk portion of an investment portfolio.

The ability to set up a well diversified portfolio of different investments with a low amount of capital means that a portfolio consisting of a range of ETFs can offer a substantial range of sector and geographical diversification, as well as tailoring your portfolio to your individual attitude to risk.

Understanding Passive Funds & Managed Funds

ETFs can be broken down into 2 distinct types:

Managed Funds

As the name suggests, managed funds are funds that are actively managed by investors.

That is to say, the underlying securities in an ETF are selected by an investment manager and the underlying securities may be sold, bought, or swapped, as the investment manger sees fit.

The benefits of managed funds are that you have a professional investment manager managing your funds and can, theoretically at least, manage your money in a smart way to deliver higher returns.

The negatives of managed funds is that they come with higher fees to cover the active management, and as such you need your investment manager to consistently "beat the market" with your investment in order to at least cover the management costs.

Passive Funds

Passive funds are the opposite to active funds and have no direct management.

A passive fund tracks a selection of securities and does not have any active management to buy, sell, or swap the underlying securities.

A passive fund simply tracks the underlying securities with no attempt to manage the funds to produce higher gains or reduces losses.

The benefits of passive funds are the substantially lower fees owing to the lack of managerial oversight, and the fact that a passive fund will track the market almost exactly, without the risk of an investment manager trying to "beat the market"

That is to say, a passive fund that tracks the FTSE100 will perform as well as the FTSE100 over the same time period, no better, but no worse.

Understanding US Withholding Tax

This is where things start to get difficult.

For more detailed advice, you would be well advised to speak to an accredited tax consultant in your country of residence.

Any US domiciled fund or stock that pays out a dividend will fall under US Non-Resident Alien Withholding Tax and any dividend distribution will be subject to 30% withholding tax.

However, this can be significantly mitigated by investing in funds that are domiciled in a country that has a US Tax Treaty in place, for example: Ireland.

Ireland has a US Tax Treaty in place that reduces the withholding tax on dividends from 30% to 15%.

This is particularly important if you hold a fund that contains stocks from multiple countries.

A US Domiciled fund would suffer a 30% tax hit on the sum of the dividends paid out, regardless of the location of the underlying securities.

An Ireland domiciled fund that contains the same mix of securities would pay 15% withholding tax on the dividends of the US domiciled securities, but 0% on the non-US domiciled securities.

As a non-resident US Alien, it makes a lot of sense to avoid investing directly into US domiciled funds that pay out dividends.

There are many funds that trade on the London Stock Exchange that are traded in USD and domiciled in Ireland.

Choosing Your Asset Allocation

Once you have got your head around the above, the fun part begins!

For most passive investors, a "Lazy Portfolio" is a good way to go.

There are some great examples of lazy portfolios over at Bogleheads.org.

But all typically follow the same basic premise:

- Broad Stock Market Index Fund - Broad Bonds Fund

With optional additions of REITs, Precious Metals, Small Cap Funds, Emerging Market Funds, etc...

These Lazy Portfolios make use of passive index funds that track international stock markets and bonds.

Your individual asset allocation will depend on many things such as your personal attitude to risk, your age, and the size of your investable assets.

Stocks are typically more volatile than bonds and produce far higher returns in a bull market, but equally suffer more during a negative market.

As a very, very, broad rule of thumb you should start out with taking your age as the percentage of your portfolio that should be in Bonds...

This advice comes from John Bogle who caveats it by saying it is "a crude starting point" which "clearly ... must be adjusted to reflect an investor's objectives, risk tolerance, and overall financial position"

A personal favourite of mine would have to be VWRD from Vanguard UK.

This is a Global market ETF, domiciled in Ireland, denominated in USD, with a low expense ratio.

The fund has holdings of 48.2% US Market and 51.8% International making it very well internationally diversified.

For a broad bonds fund, a good bet would be IUAG from iShares.

A US Bonds fund, domiciled in Ireland, with a low expense ratio.

A very simple, hands off passive portfolio could be built from these two funds alone.

Once you are happy with your stocks/bonds allocation, simply split your portfolio accordingly and buy VWRD + IUAG and simply check in every few months to re-balance your portfolio accordingly! The annual expense rate of the total portfolio is 0.25% and over the previous 12 months, at an 80/20 split, would have returned in the region of 13.5% ROI.

As always, you should ensure you do thorough due diligence on any fund before you invest!