Many British nationals have encountered significant problems when expecting their UK financial adviser or financial institution to successfully advise them as Italian residents on Italian tax efficiency and compliance with many still charging fees for advice and services which do not work for Italian residents and where mistakes can be extremely costly.
Setting up your savings and pension arrangements to meet your financial goals and objectives as well as being tax efficient and compliant for Italian residence is quite straightforward provided you are prepared to pay for advice and not guess your way through plotting a course on social media and google.
CAshFlow Planning and the use of different financial asset classes
Behaviour of different financial asset classes
Bank Accounts – How Safe are they?
The EU deposit guarantee scheme protects depositors savings by guaranteeing deposits of up to €100,000. The equivalent UK scheme provides for £85,000. Many jurisdictions provide very little or no protection whatsoever.
During the global financial crisis of 2008, many failed banks were bailed out by governments. Current arrangements prohibit this.
Bank Accounts – Inflation Risk
Cash is widely considered to have the lowest degree of risk, however with interest rates close to or below zero, money held in the bank potentially devalues over time in real terms due to inflation and bank charges.
Covid economic stimulus, Central bank quantitive easing as well as food and energy price rises are some of the reasons for higher inflation. As inflation increases, the value of cash decreases as does your ability to buy goods and services in the future.
Bonds – Government and Corporate
Corporate bonds usually offer a higher yield than government bonds because their credit risk is generally greater. UK, US and European government bond yields are now rising due to inflation. Government bonds in most major emerging economies are currently providing a higher yield but the debt to GDP (gross domestic product) ratio is fast accelerating as is the risk of default.
Both green and social impact bonds are proving to be attractive alternatives.
Equities – No Risk / No Return
Equities have significantly outperformed government bonds and cash over the medium and long term. Equities have proven to be the most effective hedge against inflation over the long term but higher volatility may make equities unsuitable for short term savings.
Sustainable Investments – Positive Impact with Competitive Returns
Sustainable investments can be described as those which are used to transition the economy towards a more sustainable and equitable future. Sustainable investments not only seek financial returns but also consider the non-financial impact and ESG (Environmental, Social and Governance) aspects.
Green and impact equity and bond funds are proving to be attractive alternatives to traditional funds. The sector is growing rapidly as the need for positive transformation in financial markets becomes more urgent.
Where will your money flow to?
Asset Allocation – Short, medium and long term cashflow Requirements
It is important to check that your current asset allocation matches with your short, medium and long term cash flow requirements and that you have calculated your income and expenditure as accurately as possible taking into account your tax obligations both in Italy as well as in the UK and any other countries where an obligation may arise.
If you are looking to use your savings to provide a regular income then a diversified portfolio of investments targeting both yield and capital growth may be advisable.
If you want to preserve and grow the value of your savings above the rate of inflation then a conservative portfolio allocation may be suitable.
If your main objective is to grow your savings over the longer term and significantly beat inflation then a growth allocation may be preferrable.
How We can Help – Putting it all Together
To make sure your savings and pensions are structured to be meet your financial goals and objectives as well as being cost effective, tax efficient and compliant with your residence in Italy, please contact us by email on [email protected] to arrange a review.
Please also forward this article to any British friends who may find this helpful.