FINANCIAL WELLNESS COACH

QUESTION

I have been hearing a lot of talk about the benefits of investing offshore. Should I do it and, if so, how do I go about investing?

ANSWER

If you were living anywhere in the world, would you invest everything in South Africa? If the answer is no, then why should you invest everything here if you are living here? It makes sense to spread the risk and diversify your investments geographically.

Offshore equity investments have done well of late.

If you had invested $100,000 in the S&P 500 Index five years ago, it would be worth $171,405 today – even with the Covid-19 collapse.

A sum of R100,000 invested on the JSE five years ago would be worth R97,619 today.

There are several ways of investing offshore. Some are easy, others complicated.

The simplest way is to invest in the top shares on the JSE. You will get a lot of offshore exposure by default, as 62% of their earnings come from offshore.

A more focused option is to buy tracker funds on local investment platforms using rands. These track specific offshore indices like the World Equity Index or the Emerging Markets Index. There is even a new one that tracks a Chinese index.

Moving up a level, there are structured products that give you offshore exposure while protecting your capital. These have been very popular of late, as many investors are concerned about market volatility and don’t want to risk their capital. These products typically require you to stay invested for five years. They use sophisticated financial instruments to guarantee that you won’t lose any capital, while at the same time participating in the growth of a particular offshore index. Most of these require a minimum investment of R100,000.

With the two investment types above, no money has been converted into a foreign currency, so the growth is purely a function of the growth in the underlying offshore funds. There is no currency appreciation or depreciation coming through. To put this into perspective, if you had converted your rands into dollars at the beginning of the year, they would have grown in value by 15% by the middle of September.

So how do we go about accessing this opportunity to make money on the depreciation of the rand?

Each taxpayer can move R1-million offshore every year. The paperwork can be daunting, but it is a relatively easy process and your financial adviser would be able to facilitate this. You can move an additional R10-million offshore, but this does take longer as you have to apply for special clearance.DM168

Kenny Meiring MBA CFP is an independent financial adviser. You can contact him at Financialwellnesscoach. co.za. Send your questions to kenny@financialwellnesscoach.co.za