When you consider that South Africa’s stock market represents only 0.4% of the total world GDP, having offshore exposure makes logical sense.
Investing directly into a Warwick Offshore Share Portfolio, or Warwick International Fund, is an effective way to achieve this diversification and improve your wealth portfolio’s risk-adjusted returns over the long term.
By investing in a direct offshore share portfolio or fund a client enjoys additional exposure to technology companies such as Apple, Google, Amazon, etc. which are not directly accessible through our local market.
So, the question is: How does one go about investing directly offshore?
To invest in direct offshore investment, a client needs to externalise funds either initially to an offshore bank account, or directly to the offshore investment company. The Reserve Bank allows taxpayers, over the age of 18, to invest a maximum of R10 million offshore per calendar year (January to December), provided Tax Clearance certificate is obtained from SARS.
In addition, individuals are granted an annual discretionary offshore allowance of R1million per calendar year, where a tax clearance is not required. This amounts to a total of R11million which can be externalised offshore.
Another advantage of a direct offshore investment is that when your investment is redeemed you are not required to exchange the foreign denominated currency back to South Africa, therefore allowing you to deposit the proceeds into a foreign bank account or into other investments products without going through the entire process again. An individual can also benefit when it comes to calculating capital gains on a direct offshore fund, or portfolio, as rand depreciation is not included over the period of the investment as only the growth of the investment in foreign currency valued at the current exchange rate is taken into account and not over the period of the investment.
It is also important to consider that currency volatility as a result of political risk, for example, could have a massive effect on your purchasing power across the world, especially if you like going on an oversees holiday with your family. Direct offshore investments serve as a hedge against a volatile or depreciating rand. It is not advisable to use offshore investments to speculate on currency movements, however, but rather to ensure a globally diversified portfolio and in doing so allowing you to build up a global wealth portfolio, giving you the opportunity to take advantage of the other 99% of what world markets offer.
The final factor to consider is the impact in your estate planning when investing directly offshore. Various offshore investment options can have material estate implications on death as probate could be required in foreign countries where testamentary laws might differ from South Africa. Moreover, there could also potentially be inheritance taxes payable in that country. Therefore, the structure of the investment is as important when investing offshore as the investment itself.
Ultimately, the optimal offshore allocation for your portfolio will depend on your current financial situation and the long-term financial plan that you have developed with your Wealth Specialist.
Should you require more information about offshore investing and how you can benefit from it, please feel free to contact a Warwick Wealth Specialist on 0800 50 50 50.