Why You Should Consider Investing Offshore

Estimated read time 5 min read

“Successful investing takes time, discipline, and patience.” – Warren Buffett

The best way to predict the future is to create it and that includes manifesting wealth creation by starting to save today. Making a commitment to save by investing your money wisely will help you achieve your financial goals in the long run while also providing for your financial obligations. One of the key things to remember as an investor is that inflation is inevitable and we need to use the power of compounding to our advantage. When it comes to holistic wealth planning, we need to see offshore investing as a key component in our approach.

How can I protect and grow my wealth in the current South African economic climate?

An optimal way to secure your financial wealth is by looking at global investment opportunities to combat the declining rand with currency diversification. Offshore investing can be a powerful strategy to help preserve and grow your money. Global investing offers unique benefits by spreading your investment risk across multiple geographies and giving you access to a wider range of investment opportunities. Craig Sher, Head of Research and Development at Discovery Invest, argues that “Adequate offshore exposure should be a part of any balanced investment strategy because it reduces risk through geographical and currency diversification.”

Diversification is truly one of the cornerstones of long-term investment strategy. It is essential to spread risk in your finances by not putting all your eggs into one basket. It is also important to diversify your investments across different asset classes, such as equities (shares), bonds, property and cash. Spreading your risk will protect you if, for instance, one asset class performs poorly – then the value of your other investments can make up for this. This is one of the main reasons why you need to consider offshore investing.

When it comes to putting together a balanced, risk-adjusted portfolio, it would do investors well to make sure they invest offshore. While there’s no guarantee that investing offshore will outperform local bets – investing out of the country is considered a key element when it comes to a balanced financial portfolio.

As a South African, offshore investment aids in capitalising on circumstances outside of the country, providing a buffer against our markets, our inflation spikes and our exchange rate fluctuations. There is however no guarantee that offshore investments will perform better than local ones as investment performance depends on numerous factors such as global economic conditions and exchange rates. Whatever your future concerns, as a South African serious about your financial well-being, you need to consider a portion of your total portfolio being invested offshore. Just keep in mind that investing is a long-term game – five to seven years minimum.

South Africa accounts for less than 1% of the global economy, which means that a significant majority of investment potential lies beyond our borders. Our domestic equities market, for example, makes up a mere 1% of the world’s total equity investments, with around 350 companies listed on the Johannesburg Stock Exchange – compared to, say, the New York Stock Exchange, with over 2 400 listed companies. Having an investment strategy that only invests in domestic assets would leave your investment portfolio open to concentration risk – which can only be mitigated through diversification.

When investing offshore you typically have two ways to approach it: direct and indirect investing. Direct investing refers to physically moving your savings or cash offshore by going through exchange control processes, opening up an offshore bank account in another country and sending your rand overseas in the currency of your choice. Indirect investing refers to investing in rand-denominated investment options which means your investment and currency exposure remains foreign, but you invest in rand and get paid out in rand because your money does not actually leave South Africa.

As a South African tax resident, you are permitted to invest up to R11 million per calendar year directly offshore (once-off or cumulative). This comprises a Single Discretionary Allowance (SDA) of R1 million plus a Foreign Investment Allowance (FIA) of R10 million. South Africans are allowed to take a maximum of R10 million a year offshore if they have been granted a Sars tax clearance certificate to move money abroad. Without this tax clearance certificate, you can only send a maximum of R1 million out of South Africa into your foreign bank account each year. If you invest in a global endowment your endowment is taxed at a flat rate of 30% on interest income and 12% on capital gains.

Investing offshore exposes your financial portfolio to a variety of exciting investment opportunities that you wouldn’t have access to in your own country. Some people believe that global investing is a complex process or one reserved only for the rich and well-connected. But this is not the case – the world of global investing has never been more accessible to citizens seeking to spread their risk. There are many options available to those seeking some offshore exposure, depending on your specific circumstances, needs and goals.

If you are considering investing offshore make sure to speak to a financial advisor who can assist you throughout the process and aid you with deciding what the best possible options for your specific financial situation are. By being proactive with your money – you can create the financial future you desire and forge the road to financial freedom.

Don’t just save your money – make it work for you.

Credit – Taken from – https://www.moneyweb.co.za/financial-advisor-views/should-you-consider-investing-offshore/

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