Rand volatility and political uncertainty are always two good reasons why people become nervous and want to take their money out of the country. We’ve certainly had much of both. But offshore diversification involves many things. To put it into perspective, Samantha Bowen, Executive Director and leading wealth management specialist at Carrick Wealth, tells us more.
As an experienced financial adviser to high-net-worth individuals for the last eleven years, my advice is always that everybody should be diversified offshore, but as an integral part of one’s long-term strategy. A portion – approximately 20-40% – of one’s wealth should be invested outside the country.
Since I arrived here in 2008 my client base has changed from mostly expats to more than 50% now being South Africans, many who are considering investing offshore for the first time.
With the South African market representing less than 1% of global stock market capitalisation, investing offshore will give you access to the other 99%. Also consider that the rand (ZAR) has depreciated on average by over 5% each year since 1971. If you compare the return on a ZAR-plus-inflation investment to its equivalent in US dollars (USD), since 2011, the ZAR investment has underperformed by 36.26% over this period. A 6% return in ZAR, for example, is not equivalent to 6% in USD. It would require ZAR inflation plus 10.5% in order to match a return of US CPI +6.5%. Those numbers are quite shocking but unfortunately it is the reality we must face.
Factors to consider
When determining the right mix between local and offshore, many factors need to be considered, including long-term goals, types of investments to be considered, time periods and risk appetite. Not forgetting the regulatory requirements of foreign jurisdictions. As these are all my areas of expertise, I would conduct a complete complimentary analysis of your current financial situation – from your current Will, to your offshore banking and your offshore portfolio.
Diversifying is not only a choice between jurisdictions and tax efficiency, but will also include deciding on different asset classes, hard currencies, industries, or investing in an international pension. One of the key areas I assist clients with, which is often overlooked, is the structure your investment is held in – this is vital to realising the full potential of your international investment.
Get professional advice
The options are many and varied, each with their own unique requirements, so professional advice will be invaluable. Once my client, I conduct a quarterly revision of your circumstances and portfolio which will allow you to adjust accordingly and to comfortably bolster your offshore investment when local conditions deteriorate. If you have thought about investing offshore but need to know more, or wish to review and update your portfolio, please contact me at email@example.com.
Disclaimer: These are the author’s personal and generalised views and should not be construed as professional advice as all individuals’ circumstances differ.