There is only one way to profit: purchase lower, sell higher.
In other words, do not sell what you have unless you can get more for it compared to the price you originally paid for it. But more so, you should also not buy something that is too expensive, where the price clearly exceeds the value thereof.
This principle is continuously (and in many cases sub-consciously) practiced at the grocery store. When we see an item is higher priced this week than what it was the previous week, or it is significantly higher priced in comparison to competitors’ pricing, we might opt to leave it or to wait for a potential price reduction or even purchase it at a competitor store. In the majority of cases will only buy the item at the particular store if it is a matter of urgency.
The same principle should apply when investing, however in the decision-making and purchase of an investment, this reasoning is often neglected.
In 2011 the Rand exchange rate was in the region of R6.50 to the Dollar. Most economists at the time were of the opinion that the Rand was too strong and that R8.50 to one US Dollar was more reasonable. Economists could not predict when the Rand would depreciate or the extent thereof, but they knew that R6.50 was not sustainable. At the same time the All Share Index (ALSI) enjoyed a few years of good returns while European and American markets experienced tougher times.
Realising the potential profit to be made, fund managers started selling South African assets and buying offshore assets, often at a discount. At the time, a small number of investors also approached financial planners requesting to take their funds aboard or at least a portion thereof. The majority of local investors however remained focused on South African assets and although they might have enquired about offshore investment, they did not opt to change a significant percentage of their portfolio accordingly as they were content with their past investment performances up to that point.
In 2015 when the value of the rand depreciated drastically those who by then had a significant offshore component reaped the benefits. It was only then when other mainly local investors started to contemplate moving funds abroad.
South African economy contributes less than 0.5% towards the global economy and it therefore makes sense to diversify financial portfolios to include offshore investment. This however should be done sensibly, based on factual and logical reasoning. Going offshore should not be fuelled by emotions which are difficult to discern when bombarded daily by news of negative market sentiment and politically volatile events.
Adding to the current uncertainties in global market movements, we find ourselves in an election year with the political environment volatile. The fight between opposition parties and those in power brings about political upheaval and unrest in some cases that has a negative and detrimental impact on the economy and investment sentiment.
As the Rand depreciate even further, investor anxiety grows and investors enquire more desperately regarding offshore investment options.
Most financial planners are familiar with this cycle of investor behaviour. As financial planners we are tasked to not only keep investors informed but also to protect them from emotional and often irrational decision-making. We work in collaboration with specialist investment managers who assist us in planning for the long term and develop strategies that ensure the potential of achieving future goals for our clients, whether that might include offshore investments or not. It always comes down to the individual’s long-term financial objectives. Individual needs dictate individual financial advice and there is no “one-size fits all” solution where it comes to investment.
When considering moving funds offshore, investors should first evaluate the international exposure they might already have through locally invested unit trust funds. Almost all major local financial investment institutions and companies earn large portions of their income through international investment. All global investment funds offer significant international exposure for local investors. In addition, consult your financial planner who should be able to evaluate your circumstances with your financial objectives in mind and present an effective albeit robust financial plan with a variety of options and associated risks.