If you strike up a conversation about investing, the phrase ‘portfolio diversification’ is likely to come up at least once.
That’s because putting all of your eggs in one basket is a bad idea. A diverse portfolio is key to keeping you afloat if one of your investments goes south, and it’s also a good way to grow your private wealth in different ways.
One of those ways is offshore investment, and it’s not as daunting as it may sound.
Here’s Fin24 with the basics up front:
The South African stocks market is quite undiversified compared to others – if a dominant player like Naspers drops on the JSE, there’s a ripple effect. This makes putting 100% of your investment into the local market risky.
There are risks involved in investing offshore as well, like currency fluctuations, but in general, if you invest in a wider range of stocks and themes, you reduce your exposure to risk.
Plus, now is a great time for South Africans to have a portion of their portfolio offshore for a number of reasons.
South Africa is facing a lot of negative headwinds at the moment – at least in the short term – and yet the Rand has been quite strong since the start of the year, so it is an opportune time to get some offshore exposure.
Right – on to how to invest the easy way.
The widely accepted perception is that you have to have big bucks to invest offshore. The reality is that new products on the market have sidestepped all of this and made it easy for the average South African to invest offshore.
Perhaps the easiest way is to invest in a South African unit trust, which in turn invests in international markets. No offshore account or broker needed…
You don’t have to jump through any international regulatory hoops to invest in these types of offshore investment vehicles, and it can be very cost effective
There are a number of options to choose from, all resulting in the same thing: a diversified portfolio.
This brings us to investing tax-free. Yep, you read right, tax-free offshore investment is a thing you can do without breaking the law.
South Africans are allowed to invest a total of R33 000 per year (maximum lifetime contribution of R500 000) into a tax-free savings account (TFSA).
A TFSA is not a single, standardised investment vehicle. It can be money market or fixed term bank account, a JSE-listed exchange traded fund, or a unit trust that invests offshore. You see where I’m going with this…
You can to take your annual tax-free savings allowance and invest it into a unit trust that invests offshore and pay zero tax on it, locally and abroad.
There is no limit to how much your TFSA investment can grow, which means that if you choose an incredibly well-performing fund, you could significantly boost your savings with no tax ramifications.
In fact, every South African over the age of 18 is allowed to take up to R1 million a year offshore without applying for permission from the South African Reserve Bank.
There are legal and tax ramifications for the above, though, that need to be taken into consideration with the above amount.
Best practice if you want to invest offshore is to get the help and guidance of professionals, like the experts at Consequence Private Wealth.
Consequence believes that the consequences of decisions made today will bear fruit over the years based on the sound principles applied at their inception.
It’s precisely those sound principals that they’ll apply to help you invest offshore responsibly and diversify your portfolio.
Added bonus – now you can bust out all those buzzwords the next time the topic comes up in conversation, safe in the knowledge that someone else is handling the tricky part.
[source:fin24]
