Women and Investing

A to Z of offshore investing

Are your curious about offshore investing or looking to refine your strategy? Explore our easy-to-follow guide.

15 Nov 2024

7 minutes

Leone Hitge
Additional opportunities

The South African equity market represents less than 1% of the world’s listed capital markets. When you diversify internationally, you get access to a much wider range of opportunities to grow your money across countries, industries, companies and currencies.

Budget for offshore expenses and meet future international goals

Investing offshore may help you fund international liabilities, making it easier to meet your international goals, such as travelling, paying for your children’s education abroad, or even retiring in another country.

Cash not always prudent

A foreign bank account may seem like an easy way to gain offshore exposure. But it can be complicated and costly to deal with an offshore bank account when an investor passes away. Besides unintended tax and estate-planning implications, an investor’s money has limited potential for growth in a foreign bank account. A financial advisor can assess your needs and guide you on your offshore investing journey.

Discretionary allowance of R1 million per year

As a South African resident, you may invest directly offshore in foreign currency up to R1 million per calendar year. You also have an annual investment allowance of R10 million you can use to invest offshore. You do not need prior approval from the South African Revenue Service or the Reserve Bank to use the discretionary allowance. But for amounts above R1 million, you will need clearance from the authorities.

Exposure to offshore assets

There are two main routes to obtain offshore exposure . You can invest directly offshore in a global fund by converting your rands into foreign currency, using your annual allowance (see ‘D’). Alternatively, you can invest in a rand-based South African fund with global assets.

Financial advisor

A financial advisor can help you make informed decisions. As with any investment decision, it is never a good idea to invest offshore based on emotional reactions to short-term events. The decision to invest offshore should always be part of your overall financial plan. If you don’t yet have an advisor, explore our list of qualified and licensed advisors from around the country. Check out Ninety One’s Find an advisor tool on our website.

Grow your wealth

There are many global companies that are exposed to growth opportunities not available in South Africa. If you wish to build your wealth over the long term, there are a variety of funds that give you exposure to growth assets such as global equities (listed shares in companies). By investing in funds that hold global equities, you will have access to a much broader investment universe than what SA-only investments offer.

Holistic view

Your offshore allocation should enhance the total risk/return of your overall portfolio. You need to look at your investments holistically, i.e. consider your offshore assets in the context of your domestic assets and your financial goals.

Inflation

Inflation is the silent enemy that erodes the value of money over time. Rising prices mean your money today won’t be able to buy the same goods and services in the future if you don’t grow it. When the rand weakens, the cost of imported goods also rises. So, for example, the price of a car you plan to buy in the future could become unaffordable. To outsmart inflation, you need to ensure that funds you are allocating towards your long-term needs retain their purchasing power. Offshore investments can help you build wealth.

Journey

Investing is a long-term journey, and the sooner you start, the better. Your investments need time to grow, so that you can reach your long-term goals. You can invest for as little as R500 a month in a fund that has exposure to global assets.

Kids – staying connected and building family wealth

Many families are split across continents. Investing offshore can help you meet future expenses like visiting your children abroad or funding their overseas studies. It is also important to have a long-term plan to protect and grow family wealth. Diversifying your investments offshore will help you leave a financial legacy for your family. We have developed the Ninety One Family Office to assist you in creating prosperity for your family that can span many generations.

Legal framework

When you invest offshore, you need to consider the laws and regulations governing your investments as there could be compliance, tax and estate planning implications.

Money market funds

If you have short-term offshore financial obligations, you could consider investing in a foreign denominated money market fund (e.g. US dollar and sterling).

Negative returns

Nobody likes them. But if you invest in growth assets such as global equities, returns can be volatile. It is important to maintain a long-term focus as markets can take time to bounce back. Managing your emotions is crucial as selling assets during market downturns will lock in losses.

Offshore – how much?

Retirement funds (provident, pension, retirement annuities and preservation funds) are permitted to allocate up to 45% of their assets outside South Africa. This does not mean that funds will always have the maximum offshore exposure; it depends on where portfolio managers find investment opportunities. Besides your retirement fund investments, you may wish to gain further exposure to global assets offshore. There is no ‘magic number’ and your offshore exposure will depend on your personal circumstances and your long-term investment goals. When determining how much to invest offshore, it is important to consider your total offshore exposure across all your investments.

Platform

The Ninety One Investment Platform offers investors an extensive range of funds and products to cater for local and offshore needs. You can invest, manage and view your local and offshore investments all on one platform.

Quick buck

Investing offshore should not be seen as a quick way to grow your stash of rands. Market and currency moves are unpredictable, so avoid short-term speculation. Have a long-term view.

Risk mitigation

Diversifying your investments across different economies and markets reduces the impact of currency depreciation or political and market events on your wealth. This also means that you are more likely to stay invested, improving your long-term investment outcomes.

Statistics reveal long-term trend

Ninety One’s analysis of its investment platform data shows that the typical investment horizon for offshore investments is more than 20 years. If you invest for the long term, it is important to invest in assets that will grow your money over time.

TFSA

Tax-free savings accounts (TFSAs) – allow you to invest up to R36 000 a year (and a life-time contribution of R500 000) without paying any local tax on the returns earned. This includes interest, dividends, and capital gains. If you’re investing for the long term, consider a multi-asset unit trust like the Ninety One Opportunity Fund , which can hold up to 45% in foreign assets, or the Ninety One Global Franchise Feeder Fund , which is fully invested in global equities. These are rand-based funds, so there is no need to convert your rands into foreign currency before you invest.

Unit trusts

provide a convenient route to invest offshore. There are a variety of funds from which to choose covering different asset classes and risk profiles. You can gain offshore exposure using rand-based unit trusts or foreign denominated global unit trusts. Find out more about Ninety One’s core fund solutions.

Volatility

You can expect to experience fluctuations in the performance of your fund(s) due to market or currency moves. If you have chosen funds to grow your wealth over the long term, avoid focusing on short-term changes in performance.

Why invest offshore?

By investing offshore you can gain access to investment opportunities that are not available in South Africa. Diversification could also help smooth your portfolio returns. You can reduce investment risk by investing across different economies, regions and asset classes. So while some of your investments may at times have disappointing returns, other may do better because your overall portfolio is exposed to different areas of the market.

(e)Xchange rate

Over the long term, the rand has consistently depreciated against the dollar, but we have also witnessed extended periods of rand strength. When investing offshore, don’t try to time the currency. Focus on constructing a globally diversified portfolio that will help you build wealth over time.

Yesterday is gone, what are you going to do today?

Whether you invest monthly in a fund or make a lump sum investment, the sooner you start, the sooner your money will have the benefit of compounding. Even small, regular investments can grow significantly over time.

ZAR - rand

You don’t have to exchange rands for euros, sterling or dollars to invest offshore. There are a variety of rand-based funds that can give you exposure to international assets. Some funds will you give you full offshore exposure such as rand feeder funds, while others offer you exposure to a mix of local and global assets.

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Authored by

Leone Hitge
Investment Marketing Manager

Important information

All information provided is product related and is not intended to address the circumstances of any particular individual or entity. We are not acting and do not purport to act in any way as an advisor or in a fiduciary capacity. No one should act upon such information without appropriate professional advice after a thorough examination of a particular situation. This is not a recommendation to buy, sell or hold any particular security. Collective investment scheme funds are generally medium to long term investments and the manager, Ninety One Fund Managers SA (RF) (Pty) Ltd, gives no guarantee with respect to the capital or the return of the fund. Past performance is not necessarily a guide to future performance. The value of participatory interests (units) may go down as well as up. Funds are traded at ruling prices and can engage in borrowing and scrip lending. The fund may borrow up to 10% of its market value to bridge insufficient liquidity. A schedule of charges, fees and advisor fees is available on request from the manager which is registered under the Collective Investment Schemes Control Act. Additional advisor fees may be paid and if so, are subject to the relevant FAIS disclosure requirements. Performance shown is that of the fund and individual investor performance may differ as a result of initial fees, actual investment date, date of any subsequent reinvestment and any dividend withholding tax. There are different fee classes of units on the fund and the information presented is for the most expensive class.

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