Benefits of offshore investing in wealth planning

04 September 2018: Offshore investing is commonly incorrectly associated with negative sentiment from investors who have a lack of confidence in the economic circumstances of a country.

“While it can’t be argued that offshore investing offers affluent individuals and families some form of protection against macroeconomic risks, this is certainly not the only reason for its prominence amongst investors,” says Elize Giese, Regional Head for FNB Private Wealth.

“From a wealth building perspective, offshore investing encompasses the diversification of an investment portfolio by affording it exposure to opportunities that are currently not available in the country in which the investor resides,” says Giese.

Consequently, individuals who intend building a long-term portfolio should consider international exposure as part of a sustainable investment strategy.

Giese unpacks some of the key benefits of investing offshore:

  • Hedging against currency risks – given the high volatility rate of global currencies, offshore investing is used as a buffer against the volatility of a country’s currency over longer periods of time.

For investors in South Africa this is often an attractive route given the depreciation of the Rand relative to the performance of offshore currencies.

  • Diversifying sovereign exposure – sovereign exposure which could result from a country failing or experiencing difficulties in honouring its debt obligations can have unintended consequences on financial investments within a country.

Diversifying through offshore investments is one strategy for protecting an investment portfolio from being entirely exposed to such risks.

  • Children studying abroad – with families considering sending their children to study abroad, having exposure to a range of investments offshore can pay off in the long term.
  • Traveling abroad – individuals who work or frequently travel overseas with their families for holiday purposes continue to benefit from international exposure as part of their investments.

The South African government currently allows individuals to invest up to R10 million offshore as part of their Offshore Investment Allowance. However, this is subject to tax clearance.

  • Shares – the ability to purchase and own shares in a variety of stock exchanges globally gives investors and families exposure to companies that have growth potential which far outweighs what is available locally.  

“With international trends continuing to indicate that a portion of wealth is better invested in a foreign jurisdiction, affluent individuals and their families should maximise on this opportunity while being cognisant of the risks of international investing,” concludes Giese.