15 Apr Offshore investing 101 – South Africa
Why should you consider offshore investing and would offshore investing yield better results than the JSE? Ian Beere, partner at Netto Invest, says there are pros and cons to overseas investment.
“Offshore investing is different from investing locally right from the start of the process, as you have to convert your rands into foreign currency. Before you can do this you will need to apply for a tax clearance certificate from SARS. Once the certificate is in its possession, your bank may then convert your rands into foreign currency, before transferring it to your investment account overseas.”
“The South African Reserve Bank will allow local residents to invest up to a maximum of R4 million overseas each year. The bank will agree to the exchange rate that you will pay to transfer the funds. Withdrawals from your offshore investment are simpler and can be banked in your South African account without any clearance required,” he says. He adds that you should not consider offshore investing if you intend to spend the money in the next three years in South Africa, or if you have a low tolerance to volatility of your investment value.
Pros for offshore investing
- Access to investment in shares and markets that do not exist in South Africa
- Exposure to returns in foreign currencies, which will protect capital from any depreciation in the rand
- Diversification of your portfolio so you are not reliant on the success of the South African economy only
- Offshore investments can be paid out anywhere in the world. This is important as trading in the rand is controlled and restricted by the Reserve Bank
- Access to other emerging market economies
Cons of offshore investing
- Developed economies may grow at a slower rate than South Africa, although at a lower risk
- The value will be more volatile as your offshore investment will go up and down with exchange rates as well as the market
- Monthly debit orders and withdrawals are not easily available into offshore funds from your South African bank account
Ian Beere’s offshore investing tips
- Ensure that your offshore investing is part of a proper overall plan. With any investment, you need to have an objective and a timeframe, with an understanding of the risks involved.
- Ensure that you know what your overall overseas investment exposure is before proceeding, as many local funds have overseas exposure in them even though they pay out in rands.
- Try to invest in funds that are approved by the Financial Services Board as it will have vetted their legitimacy.
- Avoid investing in unregulated schemes.
- Unless investing in cash offshore, have a longer timeframe in mind due to the dual volatility of the currency and the market.
- Use a globally diversified investment over a specific regional investment.
- Ensure you understand the risk of the investment beforehand.
- Should you need to spend your money in less than three years, you should probably have the funds in cash.
- In the event that you want an offshore investment you can invest in on a monthly basis, there are South African unit trusts you can invest in, which invest all of your money overseas.
This article was originally published by Destiny Man on 9 April 2013. Click here to view the article.