John Rose | Wealth Director | Iza Wealth | mail me |
Kevin Caden | Director | Iza Wealth | mail me |
Investing offshore has nothing to do with patriotism. In the recent past, articles speaking about financial emigration and ‘rushing offshore’ have painted a picture of Afro-pessimists and skittish investors. Nothing could be further from the truth.
While there is a legitimate need to wrap up all your affairs upon emigration, diversifying and taking investments offshore is not the same thing as so-called financial emigration.
Rather, asset emigration is where you live in South Africa, but your assets, or balance sheet, live abroad, with exposure to hard currency and some of the biggest blue-chip stocks in the world, such as Coca-Cola, Nintendo and Disney. This is not the same thing as transferring your retirement annuity or pension fund offshore under a formal emigration process and is therefore treated differently.
Why consider asset emigration?
South Africa has just emerged unscathed from an election. While the ruling ANC did suffer electoral losses across the board, dipping below 60% for the first time, President Cyril Ramaphosa’s government has been given a healthy mandate to govern and implement the much-touted reforms.
This may indeed bode well for the country’s fiscal stability and by extension its sovereign credit rating, and eventually lead to a general stabilisation that the country craves and needs to realise its growth potential. This is first prize for everyone.
The matter of taking assets offshore, and investing in carefully structured portfolios and products is not a reaction to, or the result of, lack of faith in South Africa’s economic stability, nor the ability of its local bourse to generate returns in the long-term, explains Rose.
Emerging markets are often subject to excessive volatility and instability, driven by localised issues or as a result of more macroeconomic events outside of our control such as a move to increase interest rates by the US Fed, the China-US trade tensions, oil prices and uncertainty around big events such as Brexit. It is prudent to diversify and hedge against currency volatility and macro-economic and regional risks.
Despite being embroiled in a commission of inquiry to uncover malfeasance in its management, there is talk at the Public Investment Corporation (PIC) that the Government Employees Pension Fund chief officer Abel Sithole wants to push for an increase in investing offshore. The GEPF manages R2-trillion on behalf of government workers.
South African investors are exposed, obviously, to the rand and SA-based stocks. While a large proportion of the JSE top 40’s income is generated abroad, this is not the same as investing directly in developed global markets in hard currency.
Understanding wealth
Wealth preservation is as important as wealth creation, and in understanding this, it becomes more prudent to invest in hard currency in the best established, robust global companies which are defensive in nature and have a mature or well-established business model. However, as with any investment philosophy, deciding on asset emigration should be a well-considered long-term strategy.
When we talk about investing, we talk about the long-term view. It is about protecting and generating wealth. The only way to fully enjoy the benefits of a diversified portfolio is through a thorough and methodical analysis of all markets and not just South Africa. When one region or sector struggles it is quite possible to be protected against this volatility by having eggs in other baskets or asset classes, which will ultimately allow you greater diversification and ability to keep your retirement goals and dreams alive.
Wider choice
Things are opening up, and being part of a global village is becoming a reality for South Africans, both high-net-worth individuals and others who wish to provide for a solid and sustainable retirement plan.
There is still a perception in the market that to invest offshore you need to jump through many administrative hoops while trying to navigate the SA Revenue Service and South African Reserve Bank. This is precisely why the decision to emigrate assets needs to be taken with seasoned, experienced professionals, and not quick-buck charlatans.
It is important to dig through the noise and deal with experts who don’t chase fads or react to headlines. The truth is, as a South African, whether you are a high-net-worth individual with double or even triple digit millions, or simply a prudent investor with as little as R250,000, there are most certainly cost, and tax-effective ways to invest offshore and enjoy the benefits of a hedge against regional swings.
We guide investors through the process, and it is assets that live offshore, not pension funds or retirement annuities. For us it is very important to be independent, as this removes shackles and allows investors to be exposed to a wider range of investments and options when considering investing offshore.
Our advice to prudent investors who wish to benefit from the wider world is to seek professional advice around how to move a balance sheet offshore. For most people, a diversified portfolio that sticks to the game-plan over the long term is the surest way to provide for retirement and heirs and to safeguard and protect your wealth. This needs expert finesse. You wouldn’t go to a dentist for a hip replacement, and the same principle holds true with taking your investments offshore.
