Need an income that will support you anywhere in the world? Build it with common investments and an online brokerage.

Basic concepts

What’s a stock? What’s a bond? What’s an ETF?

Get the basics here. Then come back for how to apply those basics to an international life.

The main idea: A money machine

Your goal is to build a machine that works like this:

  1. You feed it money.
  2. It creates more money in two ways:
    • Automatically, thanks to growth in the stock market or economy
    • Manually, through your occasional fine-tuning of the machine
  3. When you need money, you take some of the extra out of the machine without hurting its performance.
  4. The machine keeps running forever.

Step 1 probably happens before you leave your home country. You make as much money as possible, spend as little as possible, and stuff all the extra into your money machine. Maybe you sell your house and put that money in, too.

Then, once you’re traveling or “retired” abroad, step 2 keeps the money growing, step 3 keeps you fed, and step 4 feeds your children or favorite charity after you’re gone.

The machine is made of portable investments

Your machine is built of stocks, bonds, and other investments that you buy and sell online from anywhere in the world.

It doesn’t take a lot of attention

It will take time to choose your investments (step 1). But after that, you’ll just live your life, occasionally tweaking your setup and taking money out to spend on pad thai or airfare to Peru.

Two main approaches

The 4% approach

This is popular in the financial independence, retire early (FIRE) community. Basically:

  • You decide how much annual income you need.
  • You multiply that by 25. That tells you how big your portfolio needs to be.
    • Multiplying by 25 is the same as dividing your goal number by a 4% return. People using this method say it’s safe to assume that sensible investments will pay 4%.
  • You buy conventional investments, such as a few index funds and bonds, and you keep adding to them until you reach the goal amount.
  • Now you “retire” and start spending your investments. For example, you sell some stocks when you need money.
  • You sell about 4% of your portfolio each year, while the remainder (theoretically, at least) earns 4% and replaces what you sold.
  • You might die with less money than you started with, or you might have more. Some people spend more than 4% and hope to Die with Zero.
    • Play with simulations like this one to see how likely you are to end up old and broke. See other simulations on the resources page.

This isn’t for me because:

  • It requires me to be actively involved. I have to decide which investments to sell and when to sell them, plus track how much I’ve sold so far this year. I’d rather go for a walk.
  • My sense of security goes up and down with every change in the market.
  • I don’t like betting on the year of my death.

Dividend growth investing

This approach doesn’t require you to sell your stocks. Instead, you leave them alone and use the dividends they pay. Basically:

  • You identify your target income.
  • You buy dividend growth stocks.
  • You reinvest their dividends to buy more shares.
  • When the total dividends you receive in 12 months equals your target income, you stop reinvesting them. Now they’ll be paid into your cash account.
  • You “retire” and withdraw the dividend payments when you need money. (And you reinvest them when you don’t.)
  • You sell a stock only if you want to move the money into a better-paying stock. Your principal stays basically untouched.

You don’t buy just any dividend stock. You buy from companies that:

  • Pay a regular dividend, such as quarterly
  • Raise that dividend regularly, such as every year (making it a “dividend growth stock”)
  • Increase in share price over time, though probably not dramatically

Dividends are less vulnerable to market ups and downs. They often come from companies that are steady and even boring. This makes your income more predictable.

For example, let’s say that the company called Boring Dividend Stock (BDS) currently pays a quarterly dividend of $.90 per share. You buy 200 shares.

  • Every three months, BDS pays you $180. The money magically appears in the cash account at your brokerage.
  • After a year, BDS raises their dividend to $.95.
  • Now they pay you $190 every three months.
  • Suddenly, BDS suffers a setback and their share price drops. But their trouble isn’t bad enough to make them cut their dividend. They still pay you $190 every three months.
  • By the next year, BDS has recovered. They raise their dividend again and now you get $200 every three months.

I like this because:

  • As I build the portfolio, I can easily see how much income I’ll have: It’s the total of my scheduled dividends for the next 12 months. My brokerage displays it in huge numbers that even I can see.
  • I don’t stress about the typical swings in the market, because my dividends will still arrive.
  • When I need money, I don’t have to decide which stocks to sell. I don’t have to sell anything. I just transfer out cash from the dividends that have piled up.
  • I get about the same return as with the 4% rule but with less drama. (I get this return because I buy stocks with a dividend yield of 3-6% and that increase their dividends faster than inflation.)
  • When I die, my original investment will remain. I didn’t sell stocks like in the 4% approach; I took dividends and left the stocks alone. Also, the market value of those stocks will probably have increased. So if my beneficiaries sell the stocks, they’ll probably get more than I originally paid.

This detailed post explains the differences between a dividend growth approach and the 4% strategy.

Make sure the dividend grows

This approach works only if the dividends grow enough to outpace inflation. Here’s an example. It’s just an example, because I’m not an investment advisor, just a stranger on the internet.

The Dividend Aristocrats are companies that have increased their dividends every year for the past 25 years. One of them is AbbVie (ABBV), a pharmaceutical company.

This chart shows the dividend that ABBV paid each year for the last several years. The 10-year growth rate is 14%.

While their dividends increased in simple steps, their share price went up and down more often. You can see it in light blue behind the dividend bars.

As I write this, ABBV’s dividend yield is 3.78%. That’s close to the 4% used in the first approach. There are many stocks like this that pay 3-6% and reliably increase their dividends. There are also stocks that pay higher dividends, but they might not be able to sustain them.

There are lots of other factors to consider before you buy. But the dividend history is a quick way to decide if a stock deserves a closer look.

You could also consider dividend growth ETFs to avoid the hassle of researching individual stocks. However, if you’re a US citizen and plan to live in Europe, you might face legal and tax issues with all ETFs, both American and local. An alternative is to buy individual stocks using an ETF as a model.

Growth stocks

The approaches above are designed to give you a safe income. But if you don’t need that income for several years and you can tolerate risk, you could build your portfolio faster with growth stocks.

These stocks increase in value faster than typical stocks. They usually don’t pay a dividend, and they can be volatile.

Some carefully chosen growth stocks or funds could build your portfolio quickly. Then, closer to “retirement,” you can sell those stocks and buy the steadier index funds or dividend stocks that you’ll rely on.

Tax implications

When you sell a stock, the profit you make is a capital gain. Your local income tax might have different tax rates for capital gains and dividends.

For example, your local government might tax you at a lower rate for dividends than for capital gains.

Find out what the rates are before you decide on an investing strategy. The PwC tax summary for the country is one place to start.

Also, some countries require local companies to withhold tax from the dividends that they pay you. So if you own a stock from one of those countries, you might see that a small amount has been taken from your dividend for taxes.

You can probably get at least some of it back when you file your local income taxes. For example, a US citizen will report it as a foreign tax they paid, and it should reduce the amount of US tax they pay.

The right brokerage will make it easier for you to file taxes. They’ll either produce the forms that you have to submit, or they’ll produce reports that will make it easy for you to complete the forms.

Brokerage accounts and how they work

A brokerage firm is a company that helps you buy stocks and other investments. Since you want to travel or move abroad, you probably need an online brokerage.

How an online brokerage works, very basically:

  • You apply to open an account. You’ll probably need proof of your address, such as a utility bill.
  • When you’ve been accepted, you transfer money into your brokerage account from a bank.
  • Now you have a cash account at the brokerage that you can use to buy stocks and other investments.
  • You use the brokerage’s tools to research and buy stocks and other products. This uses the money in your cash account.
  • If you sell shares of a stock, the money you get from the sale is added to your cash account.
  • If you’ve bought a stock that pays dividends, they’re paid to your cash account. You might also be able to tell the brokerage to automatically reinvest the dividends to buy more shares of the same stock.
  • You can transfer money from your cash account to another bank, such as your local bank.

Here’s what it’s like to buy a stock on a big online brokerage.

Make sure it’s international

You need a brokerage that:

  • Accepts people who have your passport.
  • Accepts people in the country where you live (a separate consideration from your passport).
  • Protects your account with two-factor authentication that doesn’t require a US mobile phone number.
  • Has global support (not just at their local time).
  • Makes it easy for you to meet tax obligations.
  • Ideally, lets you invest in several markets, not just the New York Stock Exchange or your local market.

US citizens
The two most popular online brokerages among US expats seem to be Charles Schwab International and Interactive Brokers.

Of the two, Charles Schwab International might be best for new investors, especially for the buy-and-hold approach described here. Interactive Brokers is aimed at more active traders.

If you use Interactive Brokers, make sure your account is with their US location. Then, even if you invest in foreign stocks, they’ll be in an account “maintained by a US payor,” and apparently you won’t need to report them under FATCA rules, though you should confirm this with a tax pro. (US citizens are expected to file with the IRS no matter where they live.)

As far as I know, both brokerages give you the tax forms that help you report earnings to the IRS.

Use your real address when you sign up.

  • If you live abroad, use that address.
  • If your only address is in the US, it should be a real street address, and you might need to provide a recent utility bill in your name.

European brokerages
Popular online brokerages for Europeans include Interactive Brokers, DEGIRO, and Saxo Bank.

Other brokerages
Search “best online brokerage” and your location to see what’s highly rated.

Use a stock screener

Your brokerage account likely has a tool that helps you research stocks, but it’s probably not as useful as the Finviz stock screener. This screener lets you search for stocks with a dividend yield of a certain amount, from a company of a certain size, based in a specific country, in a specific sector… It makes it easy to diversify your portfolio.


Photo at top: Mérida, Mexico