What to consider when investing offshore

Globally, inflation is spiking and the cost of living keeps rising higher.

The Russian onslaught into Ukraine continues unabated, creating further instability and adding to potential food shortages, and the Israel-Hamas war compounds global uncertainty.

In SA, load-shedding continues to affect growth and, along with political instability, the appetite for offshore remains.

“The decision to invest offshore is predominantly influenced by the search for superior returns in addition to stability and security of assets, in hard currency,” says Trevor John, head of Old Mutual International sales and distribution.

Currency fluctuation 

Preoccupation with the short-term volatility of the rand and the conversion rate when planning to invest abroad is prevalent among local investors.

Traditionally, when the rand strengthened, global markets tended to correct at the same time, voiding the strong showing of the rand. 

In the past, the rand seldom strengthened when the markets  fell.

It still holds that if you’re waiting for that “perfect” time for the rand to improve to send money offshore, the markets are continually moving.

Investors would do better to phase in these investments over a set period to account for currency fluctuations.

“Timing the rand remains a risky strategy. And, more importantly, from the time that investors take the money offshore, they need to value the investment in the currency in which they have invested. If they’ve chosen US dollars, then growth needs to be measured in US dollars,” says John. 

Where to invest?

While the SA investment environment is relatively limited, offshore investing has the added complexity of a choice of thousands of companies and funds to invest in.

This is where intimate knowledge and expertise of the offshore investment space plays a crucial role. 

If an investor is risk-averse, lumping all their money into risky offshore equity markets is futile.

An investor risk and needs analysis must be done by financial advisers before deciding on the various asset classes to invest in abroad.

Money invested offshore is normally for medium- to long-term horizons and often forms part of investors' discretionary investments. 

There is also the added complexity of geographical exposure to markets in the US, UK, EU or emerging markets, among others.

It is advisable that a client's investments are seen to by a financial adviser, in conjunction with an investment manager who can structure a discretionary portfolio according to the investor's risk profile. 

Ultimately, when looking at offshore opportunities, investors, together with their financial advisers, need to consider time in the market, not timing the market or the rand. 

John urges investors eager to explore their offshore options to consider more than just returns.

“In addition to potential returns, the various investment structures available also need to be considered as well as tax implications and estate planning consequences,” says John.

“All of these factors can impact the ultimate success of an investment.” 

This article was sponsored by Old Mutual International.