Investing money in an offshore fund gives you access to opportunities across different countries, industries, companies and currencies, exposing your portfolio to more possibilities while diversifying your risk.
But with so much red tape and technical information to wade through, you might be wondering if it’s worth your while. It’s also difficult for the average investor to navigate everything that could potentially go wrong with offshore investing.
Here are some compelling reasons why offshore investing is still an undeniably part of a smart investing strategy and a worthwhile addition to any well-balanced investment portfolio.
1. Creates a More Diversified Portfolio
Investing offshore gives you a greater chance of building a balanced, diversified portfolio. It also provides access to better interest rates, stronger economies and different industries. That’s why foreigners invest in South Africa, and why South Africans should invest overseas.
Investing in international assets allows for greater diversification, which is a key investment principle for reducing risk. In addition, investing in international markets provides access to countries, currencies, asset classes and industries that are not available locally.
Investing offshore may further enhance your returns and reduce risk by diversifying your exposure to a single currency or country. Offshore investing helps to form an important part of your portfolio alongside domestic investments. As always, each investor profile is different and the level of exposure depends on your unique requirements.
2. Builds a Buffer Against Domestic Drawbacks
Offshore investing gets a bad rap at times, but it is perfectly legal and a valuable way to grow your money. Often offshore investing comes with a tag that wants to make people feel guilty for taking money out of the resident economy, but this is not something to be too concerned about.
According to an article published in Business Tech, investors could easily be forgiven for being emotionally charged given the prevailing economy.
The fact of the matter is offshore investing should always be driven by a sound investment rationale, principles, and strategies – never by emotion, which tends be irrational and impetuous.
Offshore investing aids in capitalising on circumstances outside of the country of residence, providing a buffer against domestic markets, inflation spikes and exchange rate fluctuations.
South Africa remains an emerging market, albeit with pockets of first-world industries and infrastructure. By world standards, South Africa is still a small economy with a relatively illiquid and volatile stock market.
3. Unlocks More Opportunities and Better Returns
In the same way that share prices may differ from one country to the next, the economic conditions may differ and this in turn will have an impact on the success of companies with exposure to the local economy. Ideally, all investments must be allocated to areas with the highest possible return accompanied by the lowest possible risk.
Ultimately, offshore investments continue to be an attractive option because investors can enhance their portfolio diversification and get access to much broader and deeper markets, with the second degree benefit of diversifying away from country and currency concerns
4. Allows You to Take Advantage Of Local Tax Regulations
According to Deloitte, the tax treatment of income and gains from offshore funds is dependent on where the fund is located as well as the regulatory restrictions of the fund.
If you reside in South Africa, the investment will be dealt with under SA rules, and can be transferred into an offshore or local bank account of your choice. With your offshore investments being an endowment, the applicable taxes are generally advantageous to those in the highest tax bracket.
By putting your money in an offshore investment vehicle through a local money manager – such as IFSA – you can decrease your exposure to the SA economy, while investing in shares of some of the most profitable companies in the world.
5. Offers Benefits in the Long Run
A long-term view is required to fully benefit from offshore assets’ return potential. The impact of exchange-rate risk on a foreign investment should also be an important consideration.
Many South Africans got burnt when they invested offshore in 2001 and 2002 when the rand traded at around R12 to the US dollar. As a result, South African investors now tend to have an underweight exposure to foreign investments.
While the case for investing offshore is still compelling, it is important to consider where the return from an international investment could come from: the exchange rate and / or the underlying foreign investment.
Offshore Investing: The Key Takeout
Bottom line – offshore investing is still a great idea, but one should be mindful of where you invest your money.
IFSA is an active alternative investment management firm that follows a long-term investment philosophy. We have over 60 years of combined experience in growing prosperity for high net-worth individuals. Together, we are committed to making offshore investing work for our clients.
Our investment expertise extends across asset classes and geographies, emphasising private equity funds in domestic and global markets.
With offshore fund and solutions, we can help you discover a world of investment opportunity.
IFSA (Pty) Ltd Registration No. 2000/005153/07 An Authorised Financial Services Provider Licence No. 43337