Diversifying and investing offshore can help protect investments

Question: I am concerned about the safety and security of our investments in South Africa. We do not intend to emigrate but would like to ensure that we protect our assets. What advice do you have?

Answer: South Africa is a developing country and faces many of the challenges that developing countries face. We are also in an election year, so all the country’s problems will be highlighted. This can be quite scary.

There are a few things you can do to protect your investments:

Diversify

I like to reduce overall investment risk by structuring investments correctly. If one asset class is underperforming, chances are another asset class is performing very well. This can protect your investments in volatile times.

Invest offshore

In terms of its size in the world, we account for less than 1% of global GDP. This does present a concentration risk. If you were living abroad, would you invest all your assets in South Africa?

One of the tools we have when it comes to structuring investments is to have some of our assets physically located offshore. There are a number of benefits to this:

• You have access to a much broader pool of companies to invest in.


• You reduce the risk of having all your assets in one country.


• You do not pay any capital gains tax on currency depreciation, which can be quite a saving, since over the past three years the rand has depreciated by 28% against the dollar.


• If you visit friends and family living overseas, you can access these offshore investments while you are there and not have to worry about the state of the rand.

I have seen several studies which indicated that when it comes to reducing risk and maximising returns, you should have between 25% and 40% of your assets physically located offshore.

If we look at how the local market has performed, we have the following:



Now, when we compare it with how the US market has done, we see that your investments would have benefited from being exposed to the US market.

This is not the full story, though. You will also benefit from the rand depreciating against the dollar.



There will be times when the local market will do better than the US and times when the rand will strengthen against the dollar, so do not just chase last year’s winner.

It is simple for you to convert R1-million into dollars each year. This makes it easy to start building up an offshore nest egg. There are also lots of really good investments that you can access with this money.

Health warning

Offshore investments do come with their problems, and if your investment is incorrectly structured, you could find yourself encountering massive delays in sorting out the estate if the investment owner dies.

There could also be nasty surprises on the income tax front where you may have to pay large inheritance taxes.

I would therefore recommend that you speak to a knowledgeable financial planner who can help you set up the correct structure and avoid these potential problems. DM

Kenny Meiring is an independent financial adviser. Contact him on 082 856 0348 or at financialwellnesscoach.co.za. Send your questions to [email protected].

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R29.