Is offshore the right investment for you?
There are an equal amount of opportunities and risks attached to investing internationally and you need to have a clear understanding of exactly what it is that you want to achieve.
Some investors may want considerable assets overseas as they’re considering emigrating or retiring abroad, while others may be considering sending their children overseas to study.
Questions you need to ask
- When are the funds needed? If you have an investment horizon of more than five years, you could invest between 20—40% of your discretionary savings overseas.
- How far away are you from retirement? You should not invest money offshore that you will need to provide income as the currency risk is too high.
- Are you considering emigrating or retiring overseas? If yes then a larger sum—if not all of the funds—should be invested overseas.
Where to invest
The global investment environment is decidedly more sophisticated and offers more choice in terms of asset classes, geographical areas and currencies.
The average investor would do well to consider an international balanced fund from a well-recognised asset manager, using a spread of international equities, bonds and cash. In this case, the fund manager makes the asset allocation decisions on behalf of the client, such as whether to be overweight in emerging or developed markets.
A more seasoned investor could use a balanced fund as the core of his portfolio and could use specific asset class or geographical funds as satellite investments, depending on the individual risk profile and personal preferences. For example, the investor can overweight his portfolio with emerging markets, property or a specific country of choice.
The next decision revolves around currency selection. If you are going to be spending the money overseas, you should invest in the particular currency in which the money will be spent. Currency movements are particularly difficult to predict, and the average investor is advised to leave currency choice to an experienced asset manager. A globally diversified portfolio would give a wider exposure to various currencies.
Rand denominated funds vs direct offshore investment
The final decision involves the choice of investment vehicle. You can either invest overseas directly, using your individual offshore allowance, currently R4-million (or R8-million in the case of a husband and wife), or you can utilise the asset-swap capacity of a life company.
Investing directly allows you to spend the money in the particular foreign currency as the funds do not need to be repatriated back to South Africa.
An asset-swap investment is suited to smaller amounts or to situations where you have already used up your individual allowance or you do not wish to realise the investment abroad. In this case you enjoy the benefits of international exposure but the funds will need to be repatriated back to South Africa.
International diversification is a must for every portfolio, but it’s a sophisticated process with a need for a high level of advice. Consult with a financial intermediaries to ensure that your investment plan meets your needs now, and into the future.
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