Dawie Roodt’s advice to people staying in South Africa

To protect their wealth, South Africans should ensure their investments are properly diversified and that the majority is invested outside of the country. 

This is feedback from Efficient Group chief economist Dawie Roodt, who outlined how people staying in South Africa can protect their wealth from a weakening currency and stagnant local economy. 

In the past decade, South Africa’s economy has averaged an annual growth rate of around 1%, and the rand has steadily weakened against the dollar. 

This poses a serious threat to the global purchasing power of South Africans, with many going overseas for a better quality of life and to create wealth. 

Data from The Outlier revealed that there were just over 900,000 South Africans living abroad in 2020.

This number has increased steadily over the past 20 years, from 500,000 in 2000, according to Stats SA’s Migration Profile Report for South Africa 2023.

Of these 900,000 people, 7 out of 10 live in Europe or Oceania. In particular, Australia and New Zealand have seen a large growth in South African residents. 

Roodt told Daily Investor that South Africa faces many problems, including poor economic growth, an unstable political environment, high crime rates, and collapsing infrastructure. 

“We have got a poorly run government that has the wrong ideological beliefs and the wrong policies. The result is that the economy is stagnant,” he said. 

“This is the single biggest risk that is unique, in some ways, to South Africa that produces weak economic growth and prevents wealth creation.” 

However, Roodt said the key advantage South Africa has is its liquid and well-regulated financial markets, which few other countries have. 

He explained that South Africans must use this to their advantage by leveraging the financial system to take their money offshore. 

“The obvious thing is to make sure that you are diversified properly to minimise risk and exposure to a single asset class or a particular country,” Roodt said. 

“The main thing I have been preaching for a long time is to make sure you have a significant part of your portfolio invested abroad to protect against a weakening currency.” 

Investing abroad also ensures you avoid the effects of high inflation and interest rates in South Africa, which limit the real returns generated by local assets. 

Roodt warned that South Africans still have to be careful about investing overseas as many global stock markets are expensive and may be overvalued, particularly US stocks. 

Another way to protect your wealth is to buy typical hedges such as gold or silver to store your wealth. 

Roodt explained that some cryptocurrencies are also increasingly becoming stores of wealth and can be used to hedge against inflation and a weakening currency. 

“Depending on how much wealth you have, it is important to ensure you have the right structure in place to protect your wealth and invest it efficiently.” 

“If you can remove yourself from your assets, like putting them into a company that is registered outside of South Africa or in a trust, it has the potential to be more tax efficient and more protected.” 

Another important part of protecting your wealth is to ensure you have a good financial advisor and invest your money with respected financial institutions. 

Roodt also said it is vital to ensure that if someone else is managing your investments, they have a good track record of generating real returns. 

He has previously 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 while earning 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 avoid buying property or any fixed assets that are illiquid by nature, as they present a significant risk to their 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.