When it comes to investments we live in a world of continuous uncertainties and high levels of volatility. And recent events have once more amplified just that.
Countries and economies don’t function in bubbles. And that is even more evident for us as South Africans, being such a small contributor to the global economy.
Global markets sentiments and worldwide uncertainty will always have a major impact on us. The health of our government, our economy and our markets will determine to what extend we will be affected. And our country’s finances is currently not very healthy, and will get worse.
The case for having an offshore investment portfolio:
1) The obvious reason being, diversifying your investments and taking advantage of global opportunities.
2) The rand will keep on depreciating against all major currencies with their inflation differential. (South Africa have however for the past 10 years depreciated far more than the inflation differential against the USD). Your need to protect your asset values in global terms.
3) South Africa makes up less than 0.5% of the world economic activity.
4) Technology and Biotech shares are not available in South Africa.
5) Current economic and fiscal deficits are placing South Africa in a very tight spot, and it will likely become worse before it can improve.
6) The current national debt is increasing at an alarming rate and has surpassed the R4 trillion mark.
What are your options?
Unfortunately, clients have limited (30% max) offshore exposure for pre-retirement funds in terms of the current regulations 28.
However, for discretionary investments and post retirement investments there are no limitations to offshore allocations.
The current discretionary allowance is R1 million and further R10 million as a foreign investment allowance is allowed annually.
We have always recommended sufficient offshore exposure on a client to client basis.
To consider what is adequate for you, you’ll need to take a broader view of your own situation. (The answer will be materially different for each client.)
What assets do you currently own in South Africa? (Domiciled and valuated in Rands)
- Your House, Investment properties, Pension and Retirement funds, Businesses, Local Investments (Shares and Unit Trusts).
As long as you live in South Africa and generate your income here, it will be very difficult to move any of these assets, apart from the local investments abroad.
Your 30% offshore allocation in your pension & retirement funds is then likely the only offshore exposure you will have. The rest of your assets are all based in South Africa.
What should then be considered adequate?
Perhaps all of the funds that you don’t need access to…..
Even if you move all those funds offshore, it will probably still make up a small % of all your assets. (this will obviously be different for each client).
Re-balancing your portfolio’s to add sufficient offshore exposure is a continuous process;
- not only when we are hit with the worst financial disaster of our life time,
- not only, every time the cap blows of the rand for whatever reason,
- not only when we believe the rand will go to R20 against the $USD, which happened a few times in past years. (You could have bought $USD at R11.60 during March 2018, not that long ago, AFTER NENE GATE)
Once you’ve decided that you need to start investing offshore, you will have to find a suitable vehicle and underlying investments. (Considering; Tax, Ownership, Inheritance etc)
Contact us should you want to discuss your options in a bit more detail on either
Teams, Whatup Call, Skype or Zoom.
Jacques Hodsdon – MCom Tax | CA(SA) | CFP ® is a Director of Affluence Group and specialises in Investments, Personal and Business planning
For enquiries contact, email@example.com or 013 752 6566