South Africans should invest most of their wealth offshore to protect it from political and economic problems while only investing in highly liquid local assets.
This is feedback from Efficient Group chief economist, Dawie Roodt, who said South Africa faces many problems, including poor economic growth, an unstable political environment, high crime rates, and collapsing infrastructure.
“Just be aware that we have got an incompetent and corrupt government with all sorts of silly ideological ideas,” Roodt said.
He advised South Africans to have a diversified portfolio, with a large portion invested abroad.
Apart from protecting your wealth against political and economic problems in South Africa, there are also more investment opportunities in international markets.
He cautioned that this is not without risk, as there are many pitfalls you can fall into when taking your money offshore.
In particular, he highlighted that it is vitally important to ensure you use the right structure for investors to take their money offshore, whether a trust, business or something else.
“That is what we, with our clients, put huge effort into to make sure they put their money not only into the right assets but also in the right structure,” Roodt said.
However, he said that South Africans can invest in the country but in very particular assets and recommended that they do so with a small portion of their wealth.
Roodt said there are still many investable companies on the JSE, but investors should stick to highly liquid stocks that they can sell at short notice if needed.
Furthermore, they should invest in companies that provide a rand hedge to protect them from the depreciation of the rand.
A rand hedge stock is a company that is listed in South Africa but earns a significant portion of its earnings outside of the country in dollars, euros, or pounds.
Examples of these companies include Naspers, Prosus, Richemont, Anglo American, AB InBev, BHP Group, and Glencore, among others.
He urged South Africans to stay away from buying property or any fixed assets that are illiquid by nature as they present a significant risk to your wealth and cannot be disposed of easily.
If South Africans want to buy property or a fixed asset, they should ensure the risk is shared between them and someone else or a financial institution, such as a bank, through a loan.