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What to tell your clients about investing offshore

18 Dec 2018

What to tell your clients about investing offshore

As the South African economy shows signs of recovery, the question many investors are asking is, "Is offshore investing still a viable way to increase investment returns?" Henk Appelo, Liberty Actuarial consultant for investment transformation takes a closer look at the opportunities offshore investing delivers to South African investors.

According to Appelo, there are many opportunities in the world of offshore investing such as the advantages of tax and growing markets, which can significantly grow your clients' wealth. To help clients take full advantage of international investment opportunities financial advisers need to ensure that clients have a robust investment strategy in place.

"Offshore investing for a South African investor is all about diversification. The world is a big place and by keeping your investments in one country, you're missing out on more investment opportunities. All this will make for a more diversified investment portfolio that can withstand adverse market events and also take advantage of good opportunities offered elsewhere," says Appelo.

It is always important to understand the risks you are exposing your money to when you take it offshore. There is always additional risk because of different currencies.  Currency movements may result in the Rand value of the investment fluctuating even though the actual investment has done well. 

This is why financial advisers should help their client to develop an offshore investment strategy that considers the investor's risk appetite and investment goals.  It is very important that a client understands this dynamic prior to committing to offshore investment.

Investors have different reasons for taking their money offshore, these may include things like a child wanting to go to a foreign university, an international holiday or even offshore retirement, just to mention a few.  Here offshore investing also presents the ability to invest in the currency and market where you want to go or need to pay for something.

It is also vitally important for clients to understand the impact of tax legislations on their offshore investments. You need to verify that you have a SARS clearance certificate before transferring money.

What to consider when looking at offshore investments

Do you want your investment to be domiciled offshore?

There are different options to look at, for example offshore LISP or an offshore endowment offered by a South African insurer such as Liberty.

Invest in Rand denominated portfolios that invest your money offshore

Here your funds remain in South Africa and will be available to you when you need it locally.

Invest in local balanced funds

These offer a portion of the investment to be invested offshore as part of the portfolio.

South African investors that move less that R1 million offshore every year don't require a SARS tax clearance certificate. For amounts of R1 million or more, requires a tax clearance certificate. The financial adviser needs to work closely with the client to ensure that all local and international tax legislations are adhered to.

"Your net worth plays a significant role in your offshore investment strategy too. Individuals with a high net worth can look at direct offshore opportunities. Those who can't afford to risk large portions of their investment capital could consider locally based offshore solutions that don't require them to go through foreign exchange processes," says Appelo.

Liberty's Offshore Investment Plan takes the form of a simple endowment that gives clients easy access to the global market via a range of portfolios. Liberty's Offshore Investment Plan is low cost, which means it delivers maximum benefits on the growth on your assets.

For smaller investors, many local portfolio managers will have a component their balanced portfolios investing in foreign assets.  The advantage of this is that investment professionals will make the decision of what offshore assets to invest in and how much of it as a percentage of the investment as a whole.

When is a good time to take investments offshore?

Appelo concludes, "We often see investors behave in different ways, some fall victim to moving offshore at the worst possible time.  This is taking money offshore when the Rand is weak and doing so, paying a lot for their offshore investment.  The best time to buy is when things are cheap, that means a good time to buy is when the market is down.  A good time to consider offshore investment is when the Rand is strong."

To truly benefit from offshore investing, one has to take a long-term approach instead of chasing fast profits. Expert financial advisers must guide investors through the entire investment process to help plan, prepare and grow their wealth on a globally.

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Liberty Group Limited (Reg. no 1957/002788/06) is a licensed Insurer and an Authorised Financial Services Provider (no 2409).