By Jan Faure
Wealthpoint Capital understands that deciding to invest offshore is a big decision. For many, it is not a big decision and they will jump right into it. Either way, we are here to make the process easier for you.
It has been said that investors who ignore offshore markets deny themselves exposure to a wider range of investment opportunities as well as greater diversification. Depending on your own particular circumstances and requirements, investing offshore may be prudent but it also may not suit you at all.
When looking at investing offshore, there are many aspects that one should consider. We have established 5 offshore investment tips to help clients navigate their way.
There are many financial service providers (FSP) in South Africa offering various financial products. When choosing an asset management company, or a financial advisor, make sure that they are registered with the Financial Sector Conduct Authority (FSCA). Most investors take for granted that an FSP should be registered with a regulatory authority.
Research and understand all the processes involved with investing through a particular asset manager or financial advisor. Ensure that you understand the costs and fees that are involved with the investment.
Further questions to contemplate: Will you invest directly offshore or make use of an asset swap? What are the annual fees for an asset swap facility? Will you make use of an offshore wrapper? Again, what are the fees and T&Cs? Who will assist with the forex transfer? Who will do all the paperwork? Who is offering competitive currency exchange rates? What offshore investment platform offers the most compelling products and services? What is the jurisdiction of my investment and what are the estate planning implications?
There are many more considerations than the above so ensure you are speaking to the right people.
Investing offshore is generally a long-term investment. Long-term investors are compensated for their patience. Stick to your investment plan, accept and understand what the risks are (your resolve will be tested) and then monitor your investment performance as objectively as possible. This does not mean that you should accept underperformance. Rather, understand the risk-reward dynamics of your investment and not just the percentage returns on their own.
When investing offshore one must also consider currency risk. Exchange rate risk is greater the shorter the investment period. This is because currencies can be highly volatile over short-term time periods due to a multitude of macro and micro influences. Again, this risk has significantly reduced the longer the investment term.
Contrary to some thinking out there, investing offshore is not suited to everyone. There are added complexities that need to be considered.
Here is one example: If you require income to live off in South Africa, offshore markets may not be able to generate sufficient income from your capital. Without being too technical, South Africa has higher interest rates than the US, Europe and UK because our inflation is much higher. Our cash needs to earn a much higher rate of interest to keep up with the cost of living. In developed markets, interest rates are much lower but so is inflation. A South African investing in offshore bonds (or fixed income products) with the aim of using the income to cover living expenses in South Africa will likely have a mismatch. They could end up being dependent on the foreign exchange rate working in their favour which is risky.
Before investing offshore, an investor must have a clear understanding of their wealth profile, their risk profile and their income requirements. There are many advantages to investing offshore but it must be implemented with a clear and concise plan.
There are many types of investments that all carry different kinds of risk. Experienced asset managers such as Wealthpoint Capital have sound experience with investing offshore. Consult, ask questions, compare and weigh up the best investment solution for you.
Book a consultation with Wealthpoint Capital and let us help you get the offshore investment ball rolling.
For more information, please contact us at info@wealthpointcapital.com
