As South African investors increasingly opt for taking money offshore as worries about the political and economic future mount, they are frequently making costly mistakes which could undermine the very benefits of investing overseas.
Nick Pitro, a senior manager of Austen Morris Associates, a 25 year-old global, independent wealth manager with offices in Europe, China, across Africa, South Africa and the US, said that many investors rightly feel it is prudent and a sensible hedge to have hard currency assets. “But sometimes in the desperate urge to get funds away from South Africa, they don’t follow a well thought out strategy.”
Just a bank account is not enough
In the past two years, there has been a surge in South Africans opening offshore bank accounts. While this is a good first step, too many peoples’ strategies are simply to send money to their offshore accounts every so often. “Sitting in cash in bank accounts in most countries pays next to zero, and certainly less than inflation. This is losing strategy.”
Pitro said investors should look to quality global equities because they are likely to do well over the long term and also likely to provide excellent JSE diversification benefits for South Africans.
A property needs your attention, lots of it
“We’ve noticed many people have a strong instinct to buy property offshore to create a sense of security, often as part of a second citizenship programme in countries like Grenada, Portugal and Mauritius,” Pitro noted. While this can be a good idea, especially if you have plans to live in it, managing a rental unit from South Africa can be extremely time consuming – more so if it’s in a country where English is not widely spoken and regulations unfamiliar. We recommend fully outsourcing property management to a trusted partner.
Waiting, waiting, waiting for just the right time
“If you have decided to invest offshore, you should just do it right now,” Pitro urged. “South Africans should set a target value on what they want to have offshore and move today to hit it. Waiting for the Rand to strengthen, waiting for the global equity markets to pull back only delay reaching investment goals.” He added that most investors move funds offshore over time and therefore benefit from cost averaging, avoiding buying at market tops.
Another red lag is when people are waiting to move funds, they often sit with large balances in SA money market funds, sometimes for years. “But interest on this money is taxed as income at your marginal tax rate up to 45%. Once your tax has been deducted, your returns will be below inflation which means you are getting poorer by waiting.”
Consider the whole menu
“What seems familiar and comforting here is not necessarily what investors should replicate offshore,” Pitro advised. “But South African investors tend to go with what they know.” There are so many other options that can give investors greater comfort than say buying a flat or giving a fund manager your money and hoping for the best. “For example, there are many low cost structured products which will give you the majority of upside in equity but preserve your wealth in market falls. Hard earned offshore investments should be carefully preserved as a priority.”
Don’t go it alone
South African investors often feel overwhelmed by the sheer scale of choice so tend to rely on guesswork on how to invest. “Speaking to an independent advisor who is transparent about fees and commissions and can see the big picture of your life is an advisable first step,” Pitro concluded.