Question

The recent collapse of the Rand against the dollar has made me feel very unsettled. I think that it is time that I started moving some of my investments offshore. I have two questions

• How do I go about doing this?
• Is it wise to move funds when the rand is so weak?

Answer

When it comes to investing, I like to reduce unnecessary risks as far as possible to ensure that your investment portfolio can handle economic and political crises.

One such risk is the country risk. If you have all your assets in South Africa, your overall wealth will bear the full brunt of the political and economic crises that South Africa faces. I generally recommend that my clients invest a significant portion of their assets physically offshore.

Getting money offshore is not difficult. There are many companies that specialize in converting your South African rands into dollars( or any other currency for that matter).  As an individual you are allowed to move R1 million a year offshore with ease.  This is typically referred to as your travel allowance. 

You are allowed to invest more than R1 million offshore, but you will have to provide SARS with information on your offshore assets and liabilities which could slow down the process.

Trying to time the exchange rate is a challenge and you are unlikely to get it right. Remember, with an offshore investment the exchange rate is but one part of the equation. You need to take note of the underlying values of the assets that you’re going to be investing in overseas as well as the timeframe of your investment.

The growth in the overseas equity market has been really good over the past 5, 10 and 15 years.  I have seen analyses of offshore investments where the funds were invested at the highest possible exchange rate and at the lowest possible exchange rate.  The overall impact of the weak exchange rate was not that significant.

The market usually overreacts too bad news so if you are wanting to move the funds offshore, wait a couple of days until the market settles down.  Avoid the danger of waiting for the rand to reach a particular barrier like R17 to the dollar.  You may end up missing out on potential growth in the offshore asset.

Once you have converted your rands into dollars, you should invest it in the correct vehicle.  There are a couple of options open to you:

Offshore collective investments

Here you can invest in unit trusts or ETFs. You can also invest in model portfolios that are conservative, moderate or aggressive. The minimum investment usually starts at around R100 000. 

Life wrapper

Here you would invest via a sinking fund or endowment. The minimum premium is around R500 000 and the advantage here is that you can attach a beneficiary and so avoid any offshore inheritance issues.  This is ideal for older people and those who pay more than 30% in tax.

Monthly investment

Several companies have brought out recurring premium offshore investments. These typically start at around R5 000 a month. The big advantage here is that you will be converting your rands into dollars each month. As a result, you’re not exposing your full investment to a single conversion rate.

It really does make sense to reduce the risk on your investment portfolio by having some of your investments physically located offshore. As you can see, it is not that hard to do.