BUSINESS NEWS - “Never let a good crisis go to waste” – Winston Churchill. These words were spoken during the bleakest moments of WW2, yet they hold so much truth and hope. In times of controversy and change there is always opportunity.
Offshore investing is a term often used, but that means different things to different people.
This can lead so some confusion that will hopefully be clarified today. In Europe, this term usually refers to making use of tax havens to invest your funds whereas in South Africa, the meaning is to diversify your portfolio by including offshore assets.
The PSG Wealth R21 team is experienced in advising clients on offshore solutions.
Today, I would like to explain how and why offshore investing can and should be done.
1. Diversification
Including offshore exposure in your investment diversifies risk across different economies, different regions, sectors, securities and fund managers. Locally, we have approximately 1 300 funds registered with the Financial Sector Conduct Authority (FSCA). Globally, there is more than 200 000. Looking at stocks, there are roughly 350 listed on the JSE’s main board, compared to 60 000 globally.
Just as asset classes behave differently in different market cycles, the same diversification of risk applies to different economies and regions – when one is under pressure, another might be doing well.
2. Hedging against a weak rand
Protecting yourself against the longer-term depreciation and volatility of the rand is another benefit. Be sure not to try to time the market when investing offshore, as exchange rate movements – especially with the rand volatility – are very difficult to predict.
3. Using offshore investments when working or traveling abroad
With many people globalising their lives by either living or working (or both) abroad, structuring an offshore portfolio for your earnings and spending offshore can be beneficial.
How do we do this?
There are several ways to invest offshore or to increase your offshore exposure. I would advise speaking to a financial advisor to discuss which route is more suitable for your needs as making the wrong decision can be costly and incur unnecessary taxes.
