INVESTING OFFSHORE IS ABOUT WHY, NOT WHEN
Published September 2019
If the idea of investing offshore causes a paradoxical mix of comfort and confusion for you, you are not alone.
We all know that putting all our eggs in one basket is not a good thing! Offshore diversification is a comforting benefit of offshore investing and gives you the opportunity to gain access to a multitude of global opportunities and industries that aren’t present in our relatively small and concentrated domestic economy.
Offshore investing also gives the comfort of enabling you to optimise your investments. When a portion of your assets is in a currency other than rands, your overall portfolio is more resilient in times of poor market performance and rand weakness in South Africa. (You can find out more about the benefits of diversification and optimisation in our useful guide, here.)
Most South African investors in balanced funds may already have a considerable international allocation. Pension funds are currently allowed a maximum allocation of 30%. But you may have discretionary savings (money not in a retirement fund) to invest offshore, and don’t know how to go about it. If you read further, we hope that any confusion will be replaced with clarity. It’s all about knowing where to start. And with offshore investing, you start with the end in mind.
Where do you plan to spend your savings in the future?
Being able to answer this question will put you on the right track to making the right decisions when investing offshore for discretionary purposes.
If you plan to spend your savings abroad in the future
Your future plans may require that you spend money in a foreign currency. You may want to travel abroad during retirement, visit your children (and grandchildren) living on different continents, pay for a child’s international education, or even live abroad yourself.
If these are your kind of goals, then consider investing in a foreign-domiciled offshore fund that only holds international assets such as Coronation Global Managed or Coronation Global Capital Plus. You can use some or all of your R1 million annual discretionary foreign allowance to invest in these funds. You can also apply to SARS for an additional foreign investment allowance of R10 million per year.
Given that the above funds require a minimum investment of $15 000, you can choose to invest a smaller amount (starting at R500 via monthly debit order) in a rand-denominated feeder fund that still gives you all the benefits of offshore exposure but allows you to build up capital in rand terms first before you eventually invest it in a foreign-domiciled fund.
If you expect the majority of your future expenses to be local
Even if you are living in South Africa and expect the majority of your future expenses to be local, you may still want your savings to benefit from offshore exposure.
Apart from gaining access to a wider investment opportunity set, there will always be a range of items in your shopping basket that are largely priced in foreign currencies, such as fuel, some foods and healthcare. Inputs of these items are either commodities with prices set in global markets, or they are heavily reliant on imported content. Investing offshore can help protect your money against any weakness in the rand and subsequent local price increases of these goods in the future.
If your goal is to remain in South Africa but don’t know what portion of your discretionary savings should be offshore, consider investing in a rand-denominated worldwide flexible multi-asset fund such as Coronation Optimum Growth. This fund manages offshore exposure on your behalf without constraints, while still aiming to provide long-term growth for your investment in local currency terms.
Alternatively, if you know what portion of your discretionary savings you want to invest offshore, you can consider a rand-denominated feeder fund that only holds international assets.
Investing offshore with Coronation
To meet these varied offshore investing needs, Coronation offers a range of offshore funds managed by a global team of 67 individuals with expertise across all asset classes and geographies.
Find out more on our Corolab guide here, or speak to your independent financial adviser.
The information contained in this article is not based on the individual financial needs of any specific investor. To find out more, speak to your financial adviser.
Coronation is an authorised financial services provider.