How much money should you invest offshore?

Gustav NeethlingArticleLeave a Comment

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With the South African economy limping along and a currency that has fallen to record lows in the last couple of months the question of whether or when or how much to invest offshore is becoming a favourite topic around the braai.

The South African economy represents less than 1% of the global investable universe so it makes sense not to build all your wealth in South Africa and particular in the South African Rand (ZAR). The South Africa economy was built on commodities and we were at a time revered as the best producer of gold, platinum and diamonds.

Commodities have all dropped significantly in price and this has a dire effect on the South African economy. We also don’t have exposure to certain sectors and sub-sectors like pharmacology and technology. We have been an importer of consumer goods for a number of years now.

The dramatic fall in the ZAR has put a lot of focus on investing offshore and to answer the first question of whether it is clear, given the above reasons, that you should have always invested offshore. Trying to shift money offshore (especially large lump sums) now might be a bit too late and a bit of a knee jerk reaction.

If you want to increase the exposure now it is a much better strategy to phase money into offshore markets over a prolonged period of a year or longer. If we now agree that we know we need to have offshore exposure on a consistent basis the most difficult question is : how much should I have offshore?

Currently regulation 28 of the Pensions Fund Act limits offshore exposure to 25%. I’ll ignore this guideline regarding my explanation because my recommendation takes your total portfolio into account and not just assets that fall into a retirement fund.

All returns from offshore assets are driven by two variables – the price fluctuation of the underlining asset and the currency exchange between your base currency and the currency of the underlining asset. This dramatically affects the volatility of the investment and offshore investments are more volatile or risky than local investments.

The amount of your total portfolio offshore is thus linked to your risk profile. The more aggressive you are as an investor or the longer the investment horizon, the larger amount you can allocate to offshore investments and vice versa. Even if you are a conservative investor you would want to have some offshore exposure but a very small amount.

As a guideline an aggressive investor can allocate about 40% offshore and a conservative investor less than 10%. If this all seems a bit foreign to you, don’t fret: WealthPro is here to assist. All you need to do is to identify your goal and the investment horizon of the goal and we will build the correct portfolio for you (including the right amount of offshore investments).

With WealthPro it is easy to achieve all your goals. You can sleep easy knowing that you have a well diversified portfolio including the likes of Apple Inc, Nestle, Exxon Mobil Corp and Facebook Inc.

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