Investing

5 rules for offshore investing for South Africans

South Africans who want to create long-term wealth must invest some of their money offshore, but there are hidden costs and risks to taking your savings out of the country. 

This is feedback from Citadel’s chief economist and advisory partner, Maarten Ackerman, who outlined several things South Africans need to consider before investing offshore. 

“South African investors serious about long-term wealth creation need to pay special attention to their offshore allocation,” he said.

To succeed, this goes beyond picking the next Nvidia or Amazon, but rather adopting a structured and holistic investment philosophy.”

Ackerman said it is vital to diversify your wealth across jurisdictions and countries to ensure your savings are not disproportionately exposed to political events in a single state. 

The first key consideration for offshore investment is the instrument that will expose one’s wealth to global assets. 

There are big differences between how South Africans choose to take their money offshore, with many turning to exchange-traded funds or index-tracking unit trusts. 

These are relatively cheap and offer exposure to a wide range of global companies, minimising risk. However, they do not offer investors a currency hedge that is as strong as investing in hard currency. 

Ackerman said investors also have to consider if they plan to generate income from investments offshore rather than just price appreciation through exposure to property or bonds. 

He also said that offshore investing does not limit investors to US-based assets, and Citadel sees significant opportunities in Europe, the UK, and Japan.

The second consideration is understanding the objective of the investment. 

“A key driver of offshore investment activity is protecting your wealth against rand depreciation, but we would argue that the currency is simply a tool in your investment toolbox.”

Instead, Ackerman said that investors should view themselves as global citizens and consider what currency they use to purchase goods and services when deciding how to invest offshore. 

If you earn your salary in rand but buy your car, mobile phone, or television from overseas, you need to use your investment portfolio to preserve your hard currency buying power since all of these are priced in US dollars. 

Citadel chief economist Maarten Ackerman

Your third consideration is governance and compliance, highlighted in two examples. 

The first is Russia, part of the BRICs grouping, characterised by well-capitalised banks and valuable commodity assets. Investors here have been frozen out and lost money due to sanctions applied by Western economic powers. 

Closer to home, South Africa’s greylisting has seen the cost of compliance rise as international regulators demand additional information from South Africans moving money offshore. 

This additional cost of compliance and administrative burden has discouraged many people from enhancing their offshore asset allocation, which could negatively impact their long-term returns. 

“Understanding the investment jurisdictions and compliance requirements should not be a reason not to invest offshore.” 

Our fourth consideration is the platform you will use to make your investments offshore. 

There are two primary ways in which you can facilitate offshore investments – 

  • The first is the direct route, where you move money offshore and make investments. This has become far more popular as exchange control regulations have eased. 
  • The second is where you use an asset swap arrangement, which is more complex and requires specialist advice. 

The fifth consideration is advice and the associated fees. 

“New platforms have made it easier for investors to go the direct or do-it-yourself route, but this should never discount the value of expert wealth management advice,” Ackerman said.  

Whether it is assisting with the compliance costs of the greylisting, more specific tax structuring advice, or providing you with an independent set of eyes and ears, a high-quality advisor can be an asset when deciding to go offshore. 

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