5 things your financial advisor should disclose about offshore investing

Investors should take a long-term approach instead of chasing fast profits.

Offshore investing is an attractive option for investors looking to expose their investment capital to international opportunities. However, taking your money offshore without a solid investment plan in place can be detrimental to growing your wealth. There are countless technical and legislative issues you need to consider to position yourself for success.

Offshore investing for a South African investor is all about diversification. The world is a big place and by keeping investments in only one jurisdiction, investors are missing out on international opportunities, such as the advantages of tax and growing markets, which can significantly grow wealth.

In order to take full advantage of international investment opportunities, investors need to work closely with their financial advisors to implement a robust offshore investment strategy and to discuss the following:

1. An offshore investment strategy

All investors have different reasons for taking their money offshore. They may want to send their children to a foreign university, enjoy an international holiday or retire on a tropical island. Perhaps they simply want to earn international profits.

Whatever your personal investment goals, going offshore presents you with the ability to gain exposure to an international currency and market where you want to go or need to pay for something.

A financial advisor should make a concerted effort to understand the investor’s reasons for taking money offshore and develop an investment strategy that is suited to their purposes.

2. Managing risks of investing offshore

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

It is the role of a financial advisor to help you develop an offshore investment strategy that considers both your risk appetite and investment goals.  It is very important to understand this risk dynamic, prior to committing to any offshore investment.

3. International tax legislation

You need to understand the impact of legislation locally and in the offshore jurisdiction. To avoid any penalties or unexpected surprises, it is important to ensure that all local and international tax legislation is adhered to.

It is also vital to understand the nuances of taking cash offshore. For example, if you invest less than R1 million per year offshore, you don’t require a tax clearance certificate. However, should you take R1 million or more abroad, a tax clearance certificate is required.

4. Investment capital

Your net worth plays a significant role in your offshore investment strategy too. Those with a high net worth can look at direct offshore opportunities. However, investors who can’t afford to risk large portions of their investment capital could consider locally-based offshore solutions such as rand hedge portfolios that don’t require them to go through foreign exchange processes. A financial advisor should weigh up all the investment options.

For smaller investors, many of the portfolio managers will have a component of offshore investing in locally offered balanced portfolios.  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.

5. The best time to take your money offshore

We often see investors move offshore at the worst possible time, particularly when the rand is weak. They end up paying much more for the investment. The best time to buy is when things are cheap, when the market is down. That means a good time to consider offshore investment is when the rand is strong.

To truly benefit from offshore investing, investors should take a long-term approach instead of chasing fast profits. Expert financial advisors must guide them through the entire investment process to help plan, prepare and grow the investor’s wealth on a global scale.

Henk Appelo is a Liberty Actuarial Consultant for Investment Transformation. 

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