Is investing R15k monthly in a global equity fund wise?

Question: I’m 32 years old and considering unit trust investments. I’m particularly interested in global equity funds. I have ample emergency funds and plan to invest around R15 000 per month.

My investment horizon is about five, six or seven years before I need access to some of the invested funds.

Is allocating this amount to global equity funds a wise decision?

Answer: It sounds like you are well on track with your investments – well done.

When people ask me if investing in a particular strategy is wise, I always say yes. Invest in anything as long as you invest.

When I say “anything”, I don’t really mean anything because there are investments that should preferably be avoided.

Recently, we witnessed again how people got scammed with unrealistic promises of returns and unenforceable guarantees.

Invest only in regulated investments and if you don’t understand the investment, don’t invest in it.

With the offshore market substantially larger than ours, please be careful.

The number of scams and dishonest people is also proportionately higher than in South Africa and South Africans often get propositioned by foreign “traders”, advisors and scamsters.

Offshore investments

Since you specifically asked about offshore equities, I will keep my answer focused on them with the assumption that you’ve done your homework to ensure your current overall portfolio is optimised by considering all asset classes and jurisdictions.

Given your age, you can aggressively invest in offshore unit trusts.

However, I suggest you earmark offshore funds for longerterm investments (seven or more years) unless you have a healthy exposure to SA assets that you can access in an emergency.

Due to currency movements, offshore investments carry more volatility than SA investments if measured in rands and you may just find yourself short-changed if you decide to cash in offshore funds shortly after investing.

We all agree that the rand will continue devaluing over the long term and volatility risk does reduce as time goes by.

But over the short term, it can be a very bumpy ride.

I am a big supporter of offshore investments as long as they are acquired at the right price.

However, one must be aware of certain challenges and technicalities regarding taxation on investments.

You referred to investing in offshore equity unit trusts, which is possibly the most sensible approach.

Of course, you can also invest via exchange-traded funds and direct shares.

Some considerations

Although you mentioned investing via unit trusts, you did not specify if you intend to invest via SA “feeder funds” or directly offshore. Be mindful of the following:

SA feeder funds attract capital gains tax on the unit price, which includes the underlying offshore fund returns (the base fund that the SA unit trust feeds into) plus rand depreciation since they are priced in rands.

This is not a problem for retirement funds (including retirement annuities and preservation funds as well as living annuities) since they are tax-exempt; and

Direct offshore unit trusts only attract capital gains tax on the actual investment.

As long as the returns are declared in the base currency, there will be no capital gains (or losses) on currency movements.

So it makes 100% sense to invest directly offshore rather than via feeder funds.

After all that, my simple answer is yes, investing in global equities (or global growth funds) is wise.

However, I suggest you also optimise your retirement fund and tax-free investment contributions before taking on a too-aggressive offshore portfolio.

You did mention that you have sufficient emergency reserves, so I cannot see a reason why you should not go for it.