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10 Reasons to Invest OFFSHORE!

 

01 | Diversification

 

According to economist and Nobel Prize winner Harry Markowitz, diversification is “the only

free lunch in investing. Here are three numbers that describe the benefits of diversification:
 

99% of the world’s investments are situated outside South Africa. If you want to access the world’s opportunities, you need to invest outside our borders.

 

Our gross domestic product (GDP), currency, and investment opportunity account for less than 1% of the global total. An investment strategy that only invests in domestic assets covers only 1% of the opportunity set. This is a gamble called ‘concentration risk’, which we seek to mitigate through diversification.

 

The rand’s depreciation against the US dollar has averaged 6.5% since 1994.

By diversifying your currency exposure, you may be able to capture long-term

trends in rand depreciation.

 

Keep in mind that you are already exposed to the South African economy simply by living here. The property price, pension value, and salary are all linked to the performance of SA. Doubling down on SA by following a purely domestic strategy exposes you  to potential country-specific shocks twice

 

02 | Investing in the themes of the future

 

If you believe that innovation, technology, and digitization will drive the global economy,  you will want to invest according to those themes. Social networking, e-commerce, and electronics are accessible only by investing offshore. 

 

Which would you prefer: Just the Johannesburg Stock Exchange (JSE), or a global portfolio of leading-edge stocks?

 

03 | Risk-adjusted returns

 

No one can tell you if global markets will perform better than the JSE over any given

timeframe. However, we can be fairly certain that the risk-adjusted returns of a portfolio that includes global exposure will be better than a purely domestic one over the medium to long

term. That’s because diversification lowers risk – often while simultaneously increasing returns.  What’s not to like?

 

04 | Guarding against socio-political risk

 

All countries go through events that damage investment returns. These can range from

unexpected political outcomes, such as the United Kingdom voting for Brexit, to the collapse

of a country’s economy, as witnessed in Zimbabwe.

 

Keep in mind, human beings are built to fear loss twice as much as they are programmed

to enjoy gains. Trusted advisers seek to address and mitigate client fears and remove their

perceived risks. Offshore investing does just that: it takes the worst-case scenario out of the

equation, giving you peace of mind, which most people are happy to pay for.

 

05 | Intergenerational wealth transfer

 

It’s important to consider what happens on death and how intergenerational wealth will be

transferred to beneficiaries. Using an endowment wrapper offshore makes passing assets to

beneficiaries relatively quick and simple. This access to capital can make a difficult time much easier for spouses and dependents.

 

06 | Tax efficiency

 

Both the legislation in international finance centers as well as the structure of endowments is designed to protect investors from unduly high taxation. When South Africans invest globally, a vehicle like an offshore endowment wrapper can be used to reduce the tax payable inside a fund.

 

07 | International Education

 

If you have children, educating your children abroad might be a dream you can help them fulfill. In this case, early and substantial investment into a global portfolio is crucial. Most parents want the best for their children above all else, this might just be the product that helps them meet your goal.

 

08 | International experiences

 

The rand can decline by one-third of its value against the US dollar over the course of a year – this occurred as recently as 2019 to 2020. International travel and events require saving and budgeting. This is done most efficiently in hard currencies, which are less volatile. 

 

09 | Prestige and status

 

Most people enjoy the excitement and prestige attached to having global Investments.  As we all know, we are driven more by our emotions than we know.

 

10 | Retiring abroad

 

Do you ever think about leaving the country?   Your plans don’t have to be set in stone to make offshore investing the right solution. Indeed, vague plans become achievable only if concrete steps are taken to realize them. In this situation, investing internationally is a win-win: you receive all the benefits of investing offshore while building the option of retiring abroad.

 

 

CASE STUDY: - RECURRING GLOBAL ENDOWMENT

 

Monthly premium:       Fund Value after 10 years

                           $200 $32 025  =  R860 733

                           $400     $64 050  =  R1 721 466

                           $600     $96 075  =  R2 582 198

                           $800     $128 101 = R3 422 930

                           $1000     $160 126 = R4 303 663

 

Assumptions:

 

Investment return in US dollars: = 4% p.a. net of fees

Initial exchange rate of R16.50 / $

Rand depreciation = 5% / annual contribution increase: US CPU of 2%