Foreign Perspectives

Archive for October, 2008

That list pretty much covers it for most people in the day to day run of events.

Travel insurance is something that you need once you set foot on a plane or boat. For the most part, it doesn’t cover you within your own country which is something to bear in mind if you make frequent business trips by plane. There are exceptions, of course, but look out for them.

Home insurance can sometimes overlap with travel insurance as the better policies cover many of your valuables when you’re out of our house which can avoid you needing to get travel insurance for things like valuable watches or other jewellry.

Car insurance comes, mainly, in three varieties. Third party insurance covers you when you hit somebody but doesn’t cover you nor theft of your car therefore most people go for the next option up with is Third Party Fire & Theft thus adding the fire and theft elements. They can be fairly cheap but you should always check the price of Fully Comprehensive insurance as I’ve found that as little as 10% more can move you into this type of insurance which isn’t much to pay if the person who hits you isn’t insured (not uncommon!).

The actions that the American, British and European central banks have taken have all affected their respective exchange rates of course.

We’ve seen the pound move from a typical $1.50 to more like $2 these days and that’s obviously had quite a considerable effect on international trade between the two countries which has always been substantial. Although it’s clearly an advantage to tourists from the UK going to America clearly the move in the other direction has gone down substantially.

Within Europe the pound has gone from around 60p to the euro to more like 80p for a euro these days which, combined with the dramatic price increases in discount airline flights, has pretty much killed off British tourism in Europe this year.

But the impact on tourism is just one aspect (and a minor one at that) of the impact on the European economy. It might be great for the European tourists to have really cheap holidays this year but if the exchange rate continues at anything like the current level they’ll soon find themselves out of a job as their products are priced out of the range of export markets.

When people think of moving to France their first thought as to how to generate an income is to buy a gite complex and rent it out to people from back home.

It sounds like an idyllic lifestyle, doesn’t it? You work one day a week and the rest of the week you can be sunbathing by the pool.

The snag is that you need to wash all the sheets and towels and carry out maintenance work during the week. OK, so two days work and five at the pool? In theory, you might get away with that though, of course, the guests will be using the pool too and, usually, expect you to do things for them like organise tours or the area, tell them all the best places to go and so on.

What’s frequently forgotten about in all this is the financials that go along with this lifestyle. From a typical six or seven person gite you can probably get around 700€ a week in the peak season. That size of gite equates to a small three bedroom house in size and, of course, amount of work to look after. In reality most people aim for a gite complex of around four or five gites. On the whole, you’ll eventually reach an occupancy of around ten weeks per year for the gites which translates into around 35,000€ a year of an income.

However, there’s the matter of expenses to consider. Bearing in mind that you only have four or five hours to reset the gite between guests you’ll end up hiring a cleaner to help you which eats into the income somewhat and you may need someone to look after the pool. There’s also the business of maintenance: unlike a normal house rental you’re getting a new set of tennants virtually every week and that tends to be quite hard on the furnishings so you’ll need to renew at least some items pretty much every year.

Oh, and don’t forget the taxes!

I’ll look at the normal alternative to this next time ie buying a B&B.

Christmas shopping is a bit of a nightmare at the best of times but try doing it in a foreign country and it’s that much harder.

For one thing, you need to consider how you’re gonna get all the stuff back home again. Ordinary holidays are bad enough and we had to buy a new case once to get it all back again so Christmas is just that much worse with both extra weight and volume if you’re shopping whilst you’re actually on holiday.

This time around we’d the added complication of needing to get a refund on our credit cards which is generally much more of a hassle when you’re abroad even aside from the double change of currency and the extra delay in getting the refund back to your account.

Fortunately, perhaps, getting secured loans is one option that you can safely forget about if you’re doing your Christmas shopping abroad, at least if you’ve not planned ahead for it.

If you’re considering investing outside your own country whether it be in shares or in property you need to consider the interest rate in that country relative to your own and the echange rate with your own currency.

The two tend to be linked and can rarely be considered totally in isolation. If you consider relatively stable currencies then a higher interest rate will tend to make a currency more valuable and conversely a lower interest rate will tend to make it less so. I say “tend to” because it’s far from a direct link as exchange rates are notoriously fickle: if markets take a view that a currency is overvalued then it’ll go down regardless of how high the interest rates are raised in that country.

However, unless you’re into short term trading it’s largely trends in exchange and interest rates that are important rather than the value that either may have at a given time. In fact, the neither the interest rate nor the exchange rate at a given point really matters a great deal but what you do need to do is to keep an eye on the exchange rate which is, usually, the most important variable when you’re investing outside your own country.

This also affects how you should keep score. Say you’re in the UK and you’re investing in America. In that case you need to measure the performance of your portfolio in dollars, not pounds. To rate the performance in pounds is just going to create a false performance statistic as it’ll be affected by the ups and downs of sterling vs the dollar and those can be quite substantial: in the last 20 years the pound has ranged from around $1 to the pound to over $2 to the pound. Obviously you’ll still measure your bottom line performance in sterling in this case but the performance of the portfolio itself is best charted in dollars.