Any f inancial adviser worth his salt will tell you that a well-diversif ied portfolio should have the appropriate levels of asset exposure as well as a good mix of both local and offshore assets. So, it stands to reason that an important aspect of portfolio diversification is foreign investment.
Reducing the volatility of the investment portfolio so that it is less likely to be inf luenced by local conditions is an important feature of offshore investments. This type of diversification also allows for exposure to foreign equities in
Apart f rom t he generally accepted consensus among investment professionals that diversification of your portfolio is a way to yield higher returns, it is also a way of reducing the security risk to those investments.
Sandy van der Zanden, a CFP with Pioneer Financial Planning, says that one of the best ways to protect your investment is through proper investment diversification. “Don’t hold all your eggs in one basket,” he relays the old wisdom, citing three typical aspects of investment diversification: ADMINISTRATOR DIVERSIFICATION This type of diversification entails hold-
Offshore money spreads geographical risk larger, stronger economies and the wider, global market. It is also a hedge against a weak rand.
It is a generally accepted principle that in order to reap the rewards of offshore investment, a longer investment period is required. Short-term offshore investments can tend to be quite volatile, especially if the exchange rate f luctuates significantly during this time.
Offshore investments can be made through a range of assets classes and some local f unds even have an element of offshore diversification in their investments.
Types of investment diversification ing your investments with more than one investment administrator. Today, the need for this type of diversification has been reduced through good legal protection for investors. All administrators are audited and thoroughly regulated to protect client interests. FUND DIVERSIFICATION In this scenario, you hold more than one type of fund; anything from annuities to rainy day funds. Generally this is a good strategy, however ensure that you do not over-diversify and thereby nullify any potential for returns. ASSET DIVERSIFICATION This is the cornerstone of modern
While wealth creation and maki ng money f rom t heir i nvestments has to be one of the primary goals for any investor, wealth preservation – that of safeguarding and reducing the risk of losing money – is probably one of t he primary concerns. Together with the many asset classes that allow for a diversif ied portfolio, offshore exposure is another diversification approach that allows for a good asset allocation plan as well as a wellrounded investment portfolio that also combats volatilit y in both local and international markets. investment theory, where, by holding various assets, you are able to reduce the risk of your investments and may even improve the return over time. This is often referred to as the last ‘ free lunch’ in investment and can be very valuable to you as the investor.
According to Van der Zanden, diversification does come with one warning though: diversify your investments and not your investment adviser. The relationship with an adviser is developed over time. This allows the adviser to better understand your circumstances and expectations so that he can best advise you, as well as allow for time saving, avoidance of investment duplication and even reduce overall investment risk.