Lately I have been meeting many offshore oil workers in Thailand. They are unlike the majority of my clients. Most of my clients are retired and we manage their portfolios for income and capital preservation. However, offshore oil workers have the distinct advantage of being able to live in Thailand and also bring in a very nice income. I remember in 1993 I was a project mechanical engineer for a US research base in Antarctica for 1 year. All food was provided and housing paid for. With no malls or places to spend money I saved 85% of my income.
The problem is that most offshore / contract workers make two very common mistakes. For one, most are not even thinking of retirement. Due to the dangers of their jobs, they have a live in the moment attitude. While a great many make over $100k, very few save much of that money.
The second mistake is that many get suckered into buying unit-linked life assurance products from insurance companies like Friends Provident International. These products have not only upfront fees, but recurring fees every year, poor performance, and 7-10 year lock-in periods. I could go on and on about how bad these products are. Anyone that knows about these products knows to run away as fast as they can.
What offshore oil workers should be focused on is saving their money in a low cost discount brokerage account held in their own name only and reaping the magic of compounded interest. First off, even if you’re a US citizen, the first $97,600 is tax-free as long as you are not in the US more than 30 days of a calendar year or are a resident of another country. If we consider how cheap it is to live here in Thailand, the average worker making $100k a year can easily save half of that.
Now this is where it gets interesting, say the worker is able to save $50k a year for 10 years. That’s $500k in total. Well, the key is putting that money to work in a diversified portfolio exposed to the stock market, which over time appreciates in value. You see, the goal is to be able to retire in just 10 years.
One investment that I have talked about in my columns is the Vanguard REIT ETF. For the past 10 years, it has achieved an annual return of 9.29%. This return was achieved even with the real estate crash of 2008 and 2009. That’s why it’s important to invest for the long haul. Over a 10 year period, if the Vanguard REIT ETF was the only holding in the portfolio, and by investing $50k a year, there would now be $963,351 in the portfolio. In Baht, that would be 31,013,658, which is plenty to retire here in the Land of Smiles.
The best part about this program is that it’s only saving half a year’s salary. The rest can still be spent and enjoyed. The key is setting one up so that they can retire in 10 years and not have to work anymore. With an actively managed portfolio, there would be even more than $1 million in the portfolio.
Just look at shares of Facebook. Since July of last year, shares have gone from just above $20 to almost $80.
Or even look at the NASDAQ stock market, which is up 27% in the past year.
There are a lot of options for those with the income and a 10 year time horizon. There are international stocks like the Thailand ETF, which is up almost 25% so far this year.
So what happens when the 10 years is up and you’re all set to retire? Do you have to stop spending money? No, not at all. The good news is that the person learned to live on $50k a year here in Thailand. Once the 10 years is up, we adjust the portfolio and become more conservative and look for a 5% annual return. This is just a little more than half of the 9% that the Vanguard REIT ETF delivered in the past 10 years. What is 5% on $963k? Yep, you guessed it. It’s $48k.
So at the end of 10 years, the person has a roughly $1 million nest egg, retired and living on the same amount of money as when they were working offshore on the oil rig. This is the plan to have and why I’m signing up offshore oil workers to be part of this program.
The critical components to make this work which also applies to any expatriate:
1) Open your account in a low cost regulated discount brokerage firm held in your name. This ensures you control your money and can login 24 hours a day.
2) No lock in periods and no surrender charges. If you need to access your money in an emergency it is there for you to be wired out in a matter of 3 days to any bank.
3) Use a fee only independent investment advisor.
4) Diversify globally using US stocks and funds that trade on the Nasdaq and New York stock exchanges.
If you’re an offshore oil worker and would like to know more, give me a call, email or Skype and we can discuss your options.
Don Freeman is president of Freeman Capital Management, a Registered Investment Advisor with the US Securities Exchange Commission (SEC), based in Phuket, Thailand. He has over 15 years experience and provides personal financial planning and wealth management to expatriates. Specializing in UK and US pension transfers.
Call 089-970-5795 or email: firstname.lastname@example.org.