Why invest offshore?

SOUTH AFRICANS can move R1m overseas without needing a tax clearance (this is known as your single discretionary allowance).

You can move as much as R4m offshore, but the SA Reserve Bank will require a tax clearance from the South African Revenue Service (Sars) before it permits this.

And with options such as asset swops or unit trusts, it’s possible to move even more money beyond our borders. You can even invest overseas by buying rand-denominated unit trusts and other rand-denominated instruments – and this also enables you to pay monthly amounts rather than one lump sum.

But why would you want to invest offshore?

There are a number of reasons you might want to consider:

* Access to investment opportunities not available in South Africa;
* Diversification of your investment portfolio;
* Stashing money away against future expenses – for example, if you wish to educate children at foreign universities, you wish to travel extensively, or you wish to retire overseas;
* Offshore investment offers a hedge for people who fear political or social unrest and
* A hedge against the depreciation of the rand

On the downside:

* Developed economies often have much lower interest rates than we do and your investment may grow much more slowly;
* It may require a significant chunk of funds – if an investment has a minimum of £10 000, that’s now worth about R150 000;
* You will be dealing not just with volatility in markets, but also volatility in currencies;
* The market in the wider world is a rather daunting unknown to the individual investor – what risks are you taking?

Investing offshore is a long-term thing – you should not try to ‘game’ the market by betting on currency fluctuations, for example.

Think about what happened at the turn of the century: the rand dipped to an ultimate low of about R13 to the dollar and the dot com market was booming.

It was an environment in which people felt safe putting as much as they could into dollars, but then the rand weakening suddenly went into reverse and the dot com bubble burst, so investors lost as much as half the value of their investment.

You have some protection if you stick to investments which are registered with our Financial Services Board.

Ideally, you should seek the advice of a financial advisor who focuses on offshore investments and has a good track record in this field.

High Net Worth (HNW) people do it!

South African HNW individuals hold 32% of their wealth offshore, with the UK being the largest booking center, according to Datamonitor’s 2012 Global Wealth Managers Survey.

Although South Africa has the most advanced financial centre in Africa, it still does not offer as comprehensive a product range as well-established financial centres like London.

- Fin24

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