Timing is your best friend when investing offshore

OFFSHORE investing can seem like a great idea. It’s great for diversification, you are exposed to different economies, and you do not need to confine your portfolio to the performance of the South African market alone.

South Africa’s GDP makes up about 1% of global GDP, so that puts into perspective the magnitude of the opportunities out there.

For wealthy individuals, incentives for investing offshore also include tax relief.

There are several countries that offer tax benefits and it is not unusual for the ultra-rich to move trusts to those jurisdictions.

Investing offshore means you can diversify your portfolio across a number of economies, currencies and market conditions.

Depending on where you look to invest, you can take advantage of growth prospects in jurisdictions where you feel your money might work best. For instance, you might want exposure to China or India - whose economies are projected to grow 6% and 7.5% respectively.

Remember: although you can protect your portfolio from a volatile rand and other market movements, timing is of the essence.

Depending on which geographical region you’re looking at, it’s best to assess the impact of the exchange rate.

For instance, if you buy shares in a US-listed entity, you want to purchase them when the rand is trading at R13 to the dollar, as opposed to when it’s trading at R16.

A share that costs $100 will cost you R1 300 at the first level, and R1 600 when the rand is trading at R16 to the dollar.

In the event of the rand strengthening to R12/$, and assuming that the share price doesn’t increase, the value of your investment will fall to R1 200.

The opposite is also true. If you invest while the rand is weakening, you could benefit from the exposure. It’s also important to remember that investing offshore is a long-term game. If you look at the rand/dollar movements over the past 10 to 15 years, you’ll see why it’s vital to have an outlook of more than 10 years.

Since 2007, the rand has touched a low of R6.49/$ (on October 31 2007) and reached a high of R16.87/$ (on January 18 last year).

You might think that only those with a stockbroker or portfolio manager are able to get access to an offshore account, but there are several ways that you can get yourself a piece of the offshore action.

There are a number of exchangetraded funds, exchange-traded notes and unit trusts that will give you exposure to several indices for an amount you can afford.

Some are linked to the S&P500 or the UK and Japanese stock exchanges.

Combing through different platforms for the ETFs, ETNs and unit trusts you’d like could work in your favour.

Alternatively, you can decide which countries, markets or indices you’d like to invest in and speak to your financial adviser or broker about the available options.

The secret to successful offshore investment as a beginner is to make monthly contributions to an ETF – better yet if it’s a tax-free investment.

The great thing about this option is that you use rands to buy your investments, and you are paid out in rands.

This eliminates the need to jump through regulatory hoops with the Reserve Bank and the South African Revenue Service.

Remember that, while investing offshore offers you a lot of exposure to alternative markets, you should allocate a small percentage of your portfolio offshore, as you do not want to end up being overexposed.