Invest offshore to maximise your diversified portfolio

With all the issues SA faces, investing offshore has become a hot topic. The recent budget speech again highlighted some of these issues, including baling out mismanaged SOEs, and a bloated public sector wage bill, among other things. It raises the question: where do we invest our hard-earned money, if not in SA?

Why invest offshore?

A diversified investment portfolio should have an offshore component. This allows for access to different companies, economies and jurisdictions. While retirement funds are capped at a newly announced 35% offshore allocation (40% including Africa), products such as TFSAs, living annuities, investment portfolios, endowments and offshore products offer ample opportunity for offshore exposure.

There are two methods mainly used to invest offshore:

Direct offshore investing involves investors externalising their rands, by converting to a different currency — mainly USD, GBP or EUR — and investing in a product in their name, in a jurisdiction other than SA. This means one's money physically leaves SA. Each individual has an annual single discretionary allowance (SDA) of R1m and a foreign investment allowance (FIA) of R10m. Tax clearance is not required in respect of the R1m SDA, but a tax clearance certificate is required for the R10m FIA.

Direct offshore investing is the more involved of the two methods and may be more costly. Minimum investment amounts may be applicable. There are tax consequences, and while it offers greater diversification, there are risks attached to investing offshore — Russia invading the Ukraine is a big risk factor for the global markets.

Indirect/rand-based offshore investing is the simpler of the two methods and more accessible for majority of investors. By using an independent local linked investment service provider platform mandated to invest in foreign assets, the platform’s foreign exchange capacity can be used to send your money offshore, without converting into another currency.

Generally, this is done through investment into a local asset manager’s “feeder fund”. Your money doesn’t physically leave SA, but you still reap the benefits of offshore investing. It is more cost effective, there are generally no minimums and monthly contributions can be made. Tax consequences do apply.

Investing offshore should be carefully considered, as rash decisions may lead to mistakes. Externalise appropriately, with a properly drafted and thought out financial plan, to make the most of this investment strategy.

Speak to your Edge Wealth independent financial adviser for further independent advice.

This article was paid for by Edge Financial Services.