There are many reasons why South African investors should consider including offshore investments in their portfolio, but the one undeniable truth is that the best time to start is now!
The South African economy faces numerous challenges, from sluggish economic growth and political instability to a weak and volatile rand and a relatively small and concentrated local stock market.
These factors create risks, limit portfolio diversification opportunities and keep investors from generating the best possible returns.
Bigger opportunity set
While diversifying offshore to reduce concentration risk is an important consideration for self-directed investment portfolios, the most compelling reason to consider investing internationally is accessing the broader universe of opportunities that exist in the markets, geographies and sectors that exist beyond our borders.
Local investors have more options than ever to diversify investment portfolios and access opportunities by investing in the world’s biggest and most profitable companies, such as Apple (AAPL-NASQ) and Berkshire Hathaway (BRK.B-NASQ).
Overseas markets also give investors the ability to access hyper-growth sectors, like big pharma and technology with stocks like Eli Lilly (LLY-NASQ) and Alphabet (GOOG-NASQ), or powerful trends like AI and cloud computing through stocks like Nvidia (NVDA-NASQ) and Amazon (AMZN-NASQ).
Easy to invest offshore
After the South African Reserve Bank (SARB) eased its exchange control regulations, and technology made it easier to access global markets, investing offshore whenever we became easier than ever.
These developments have lowered the barriers that traditionally limited our ability to invest offshore, such as high investment minimums, restrictive limits, and complex application and approval processes when trying to externalise capital.
Individual retail investors can now utilise an annual allowance to invest up to R11 million directly offshore in foreign currency or foreign-domiciled FSCA-approved offshore funds per calendar year.
This includes a single discretionary allowance (SDA) of up to R1 million, which has changed the game for self-directed investors, who can now invest offshore within this limit at their discretion.
Investment platforms like Clarity, by Investec have also made it easier than ever for DIY investors to get their share of global markets by investing across a range of assets.
Investors can also use the app to easily convert South African rands (ZAR) into US dollars (USD) to hold cash reserves in foreign currency to hedge against ZAR weakness without any need to produce documents or evidence relating to the funds transferred like you would when travelling.
There are also other opportunities to boost offshore exposure indirectly via feeder funds. These rand-denominated funds invest in underlying offshore funds via an asset swap, which means retail investors do not need to utilise their SDA.
Start investing now!
Investing overseas via the Clarity, by Investec platform is quick and easy. There is no paperwork required and there are zero sign-up fees.
Regular account top-ups are simple with funds landing in your account for instant real-time trading in international stocks and ETFs and conversion into forex.
And there is no rationale to wait for the perfect international investment opportunity. In fact, trying to time international markets is a fool’s errand.
This approach is risky as it requires externalising large lump sums and deploying into concentrated investments.
A sensible strategy to externalise investment capital and invest directly offshore is known as buying the average, or dollar-cost averaging (DCA).
By investing a fixed amount at regular intervals, regardless of the prevailing exchange rate, investors buy stocks and USD at different prices, which averages out the cost per unit over time.
This approach mitigates the risk of buying at a high point in the exchange rate or share price, buying some at favourable and some at less favourable levels, which evens out the average cost.
The key is to start now and keep contributing to your DIY investment fund at regular intervals because time in the market tends to beat timing the market.
