It is becoming easier and more affordable for South Africans to invest in offshore funds, according to Pieter Koekemoer, head of Personal Investments at Coronation.
Offshore investments are any investments that a person makes outside of the country that they live in.
Koekemoer shares five facts you should consider before you invest offshore.
1. You may have enough
Koekemoer said that investors that are saving to retire in South Africa through a domestic balanced fund may already have a suitable amount of offshore exposure to fund their future liabilities in rand because Regulation 28 now allows investment managers to hold up to 45% of international assets.
2. But you may need more
Investors that are able to invest beyond what they need to fund a retirement income in rand terms will benefit from the extra international exposure in their complete investment portfolio, according to Koekemoer.
As South African consumers, we are all exposed to the challenges of the domestic economy as well as the volatility of the rand, which can materially impact the purchasing power of our income. You may also have future international expenses like travel.
Koekemoer said: “In all these instances, it is sensible and probably prudent to build up a pot of capital outside of South Africa that can effectively assist in meeting your long-term financial planning objectives.”
3. It's more straightforward and more accessible than you think
According to Koekemoer, people can invest their money in a South African fund that invests all or a portion of its underlying assets internationally or via an offshore fund.
“The latter option diversifies jurisdiction risk and allows settlement in foreign currency, making it easier to fund those future international expenses mentioned above,” Koekemoer said.
4. But what about the paperwork and minimum investment requirements?
Koekemoer said that offshore investments can be funded from the existing foreign currency holdings of a person or their annual single discretionary allowance of R1 million. This allowance is available to all South Africans over 18 without any tax clearance requirements (ie, minimal paperwork).
Domestic banks are making the process of obtaining foreign exchange and opening a foreign currency bank account easier and more affordable, while some global money apps allow people to turn their rands into foreign currency.
5. How do I choose the right fund for my future offshore expenses?
Koekemoer said that people need to go for an offshore fund range that is easy to understand and tailored to meet the specific needs of the investor.
“Funds that span across global markets and asset classes will be well-positioned to meet the needs of most long-term global investors, and those who are more risk averse and have shorter-term capital preservation needs can also seek out lower-risk fund alternatives,” Koekemoer said.
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