Unfortunately, South Africans have a history of panicking when the Rand weakens sharply and responding by taking money offshore. This is a typical investment rookie mistake as the timing of moving money offshore when the Rand has weakened sharply could be very costly.
We can however not shy away from the fact that due to a struggling South African economy, political uncertainty and the long-term effect of the weakening Rand, decent offshore exposure becomes inevitable in a well-structured diversified investment portfolio.
Why do you need to invest offshore?
International investing will give you access to regions and industries not well represented locally and assist in spreading your risk. Examples include the technology, biochemical, aerospace and medical device sectors.
We should expect the Rand to depreciate by roughly 4% per annum versus the US dollar over time, based on the inflation differential between the two countries.
The South African market is less than 1% of the global market. Allocating 100% of your investment capital to the South African economy would be suicidal.
Political uncertainty is a reality, and with all the recent noise about land expropriation without compensation, you need to diversify your risk.
You might be thinking that offshore investing is a very difficult and complex process that is only meant for the wealthy. The good news is that you can invest in an indirect offshore investment with as little as R500 a month. This is a very easy and simple process.
If you would like to invest directly offshore, this has also become a hassle-free process. South Africans are however only allowed to take R1m out of the country every calendar year without a tax clearance certificate, and up to R10m a year with tax clearance.
It is, however, important to remember that offshore investing remains a long-term investment strategy and should not be used for short-term speculative reasons.
As I am writing this article it has been announced that South Africa has fallen into a technical recession, which just emphasises my points already made.
For any advice on offshore investing please feel free to contact us.
Heinrich Coomans | CA(SA) | CFP ® is a director at Affluence Group and spesialises in Investments, Personal and Business Insurance. For any questions please contact him at firstname.lastname@example.org or 084 586 9509
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