Avoid knee-jerk offshore options

DON’T HAVE NO CAPITAL WHERE YOU ARE Supplementing what you have remains a good idea but find the balance.

Amid political turmoil, declining economic growth and uncertainty over the past three years, it would have been easy for SA investors to say let’s take our money and run.

Old Mutual Wealth’s Dave Mohr is opposed to such a knee-jerk reaction.

However, he still believes it’s prudent to invest money offshore, even on top of the roughly 50% exposure a typical local balanced fund would already have.

Investors must recognise that offshore exposure through locally listed companies like Naspers, Richemont and a few mining firms is very concentrated, he said at a recent Financial Mail and Old Mutual Wealth event.

“So from a diversification point of view – absolutely – there is still a very strong argument to supplement anything that you have got in your pension fund-type environment in SA with offshore investments.”

Investors often want to know if they have to invest directly offshore and if so, how much. Most people probably want to invest 20% to 40% directly offshore, but it depends on circumstances.

Le Roux said financial advisors must leave clients in a position where their assets match their liabilities. Liabilities beyond retirement refer to making capital available for their needs, and providing an income.

“It is pointless to take everything directly offshore and then be left with no capital that can provide an income here because if you are going to go through the trouble of diversifying offshore and going through the channels and taking your money out you would probably want to leave the bulk of that there for the longer term as opposed to start repatriating those funds soon after that.”

Nesan Nair at Sasfin Securities said SA’s experiencing such low growth due to a lack of consumer confidence. If that changes, which could happen quite quickly, SA could easily see growth of 3% to 3.5%. Investors must ensure they use an investment vehicle that allows enough flexibility should things change for the better. But at the moment the US and Europe offer better growth rates.

Nair said the significant pullback in fixed investment formation in SA over the last three years basically implied that even if the country managed to grow the economy on the consumption side, it would hit a ceiling in terms of how many goods and services it could provide.

This could constrain growth and returns.