Investing your wealth offshore
In the aftermath of the Nenegate debacle in December 2015, the South Africa currency hit a new low of R17.99 against the US dollar. Since then it has strengthened significantly and has traded below R13 to the dollar at times in February 2017. Many commentators are suggesting that now might be an opportune time to consider investing offshore.
The South African economy continues to be negatively affected by local and foreign socio-political and economic factors, and growth prospects for the next few years look pedestrian at best, compared with many other investment destinations.
A well-diversified portfolio of investments should include an offshore component. This will mitigate against the risk of over-concentrating your assets in an economy that represents less than 1% of the global economy. Investing offshore will allow you to invest in economies which are considered to be more stable at the moment, and will hedge against the volatility of the rand. You will be able to choose from a far wider range of investment options when adding offshore investments to your portfolio. For example, there are only a few technology, fuel or pharmaceutical companies listed on the JSE, but a multitude on Stock Exchanges elsewhere in the world.
There are two ways to invest offshore. You can either invest directly using your investment allowance, or locally through a rand-denominated asset swap fund.
Investing directly offshore involves physically transferring funds out of the country. Despite South Africa still having a system of exchange controls in place, citizens are currently able to invest R11 000 000 per annum offshore. There is unfortunately a fair amount of red-tape involved. However, when transferring less than R1 million abroad, there are only a few requirements and the process is usually smooth and manageable. A direct offshore investment can be facilitated through the foreign exchange department at your commercial bank, or with the assistance of an operator who specialises in this service.
A far easier way for you to diversify into offshore investments is to include rand-denominated offshore funds in your portfolio of investments. By so doing, you are able to indirectly invest in companies such as Apple, Microsoft, Johnson and Johnson, BP, Vodafone, Berkshire Hathaway and the like, without actually physically transferring funds out of the country. The returns of these funds are influenced by the performance of the underlying shares and the movements of another currency, but the proceeds are ultimately paid to you in rands when required.
There is no right answer as to which of the above methods to follow, or what percentage of your wealth to hold in offshore investments. We are all influenced by a unique set of circumstances when it comes to financial planning, including our age, family commitments, income requirements and financial goals. The offshore investment universe is vast, with thousands of funds on offer.
A Certified Financial Planner will be able to provide you with sound advice as to where to invest and guide you through the investment process.
Rands and Sense is a monthly column, written by Ross Marriner, a Certified Financial Planner with PSG Wealth.
His Financial Planning Office number is 046 622 2891.