Considering offshore investment amid the rand and JSE's performance

Question

The rand has improved against the US dollar over the past year. Is this a good time to move money offshore?

Answer

This is a really relevant question. However, against this must be weighed the performance of the JSE, which delivered 37% last year.

So, does it make sense to move your funds offshore at this attractive exchange rate or should you rather invest it in the local market?

There is no simple answer. A lot depends on your personal circumstances and your broader investment plan. I will take you through some of the issues that I would consider when making this decision.

Your offshore investment needs to be part of a broader investment plan. A proper plan must achieve two things: provide long-term growth as well as protection against risks you cannot control. These risks would include currency, political and regulatory risks.

A question I often ask my clients is if you lived in the UK, would you invest 100% of your assets in South Africa? Most people would immediately recognise that as a high-risk strategy. Yet many South Africans have all their assets here – not because it’s the optimal choice, but because it feels familiar.

South Africa makes up less than 1% of global GDP. The JSE, though sophisticated, represents a tiny slice of global opportunity and is heavily concentrated in a handful of sectors and companies.

By contrast, the global opportunity set includes thousands of companies, multiple currencies and exposure to innovation, technology, healthcare and global consumer trends that simply don’t exist locally at scale. Ignoring this opportunity is risky.

Diversification is one of the few free lunches in investing. True diversification works on several levels:

• Across asset classes (cash, bonds, equities, property);
• Across sectors;
• Across currencies; and
• Across countries.

There will be times, like now, when the JSE will outperform offshore, and there will be times when offshore will outperform the local market. The trick is to hedge your bets by having a mix.

How much should be offshore?

The appropriate level of offshore exposure depends on your personal circumstances. Factors to consider would include:

• Where you plan to retire;
• Your future spending currency;
• Your income sources;
• Your tolerance for volatility; and
• Your overall asset base.

That said, as a broad guideline, most of my clients aim to have between 25% and 45% of their assets physically offshore. Not because offshore is “better”, but because balance is what matters.

So … should you invest offshore now?

There isn’t a single right answer – and for some people, now may not be the right time at all. What matters is understanding how much offshore exposure makes sense for you given your circumstances, goals and existing portfolio.

That’s where a conversation with your financial planner helps: to assess your overall asset mix, consider the role offshore investments could play, and decide whether a gradual move – or no move at all for now – is appropriate, especially given the solid opportunities still available in South Africa.

Offshore investing shouldn’t be an emotional response to headlines or currency moves. It’s most effective when aligned with long-term objectives and thoughtfully integrated into your broader financial plan. DM

Kenny Meiring is an independent financial adviser. Contact him on 082 856 0348 or at financialwellnesscoach.co.za. Send your questions to kenny.meiring@sfpwealth.co.za

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.