Shaun Latter – Quaestor Wealth Management
The dismal performance of the rand recently, has given rise to many investors exploring the option of moving assets abroad. Whilst giving your portfolio an international flavour is imperative in any well-diversified portfolio, some guidelines should be considered.
To my mind, investors fall into three broad categories when it comes to offshore investing:
The diversifier – this is the investor who holds a portion of their assets in international markets. There is little doubt that every investor should have at least some of their investment capital exposed to global businesses and currencies. The reason for this, as with most diversification strategies, is to lower the risk/volatility of your portfolio. Our current environment is a case in point and whilst we may bemoan the weakening currency, this bodes well for those who hold a position outside of RSA.
The globetrotter – in addition to the diversification needs mentioned above, some have expenses that need to be covered in foreign currencies. The reasons could be numerous; however, quite commonly, parents have children living abroad. It may be education and living expenses for your child studying abroad that need to be covered, or regular visits to family members who have emigrated. We live in a global village and need to plan accordingly.
The afro-pessimist – despite how positively I may feel about our beautiful country, it is not without its own set of problems and this has led to some feeling more than a little jittery. One only has to read the newspaper headlines and it becomes difficult to say that concerns are unfounded. Therefore, some investors find greater security in having a healthy chunk of their assets ‘under the shade’ of a stronger currency and/or economy. This strategy can work provided it is done intelligently and not to the detriment of your lifestyle here.
So where does this leave us? Certainly, every investor should have some offshore exposure. The exact amount differs according to investor’s goals and risk tolerance but 15%-25% is a fairly prudent number. Recent rand depreciation may have left some investors overexposed internationally and rebalancing should be done pronto (as is the case with any asset held for diversification purposes). In this circumstance, there is no need to physically take your money abroad but rather through what is known as an ‘asset swap’. This is done at a fund level (with your existing investments) so as to be able to rebalance easily.
For those with offshore expenses or needing the security, going direct is the answer. Offshore allowances have been relaxed over the past few years to allow an investor (over the age of 18) to invest up to R10 million every calendar year abroad. In addition to this, you also have a single discretionary allowance of R1 million.
Wherever you fit in the above categories, discuss your offshore strategy with your financial planner to ensure that it serves your lifestyle goals and personal needs.