If you're a high net worth individual in SA, you're probably asking how much of your portfolio should be invested offshore.
There's no exact answer, but a useful starting point may be to hold at least 30% offshore in order to ensure diversification and exposure to global investment opportunities and markets.
Each person will have different requirements, but it is critical that you have enough assets in your home currency to live comfortably in retirement and cover your expenses. Beyond that, it always pays to see your assets as global.
As a rule, the more funds you have to invest, the higher the proportion that should be invested offshore. Very high net worth individuals may, for example, choose to place a higher portion of their investable asset base offshore, since they will still have enough assets to cover all their local requirements.
According to Annelise Peers, Chief Investment Officer for Investec Wealth and Investment, Switzerland, globalisation has enabled people to hold up to 50% of their wealth offshore.
How much of my wealth should be offshore?
1. Build a global portfolio
The JSE has close to 400 listed companies, which compares with the almost 50 000 listings falling under the World Federation of Exchanges. So, it makes sense to broaden one's investment horizons beyond the JSE. Some sectors are either under-represented or not represented at all on the JSE. Going offshore is one of the only ways to access the full potential of the world’s leading technology firms.
Building your offshore portfolio should be part of a coherent long-term strategy. The goal of your investment manager should be to create a well-balanced, well-managed long-term portfolio, with a global perspective.
Investment managers should tailor strategies to suit individual clients, based on their circumstances. A typical portfolio will include traditional assets such as listed equities, bonds, property and cash – as well as alternative investments such as structured products, private equity, physical property and sometimes even venture capital. How these building blocks are put together will differ from client to client.
2. Take different international tax laws into account
It's also critical for offshore investors to understand the tax consequences of their investments, as tax regulations vary across jurisdictions.
Poor estate planning can have severe implications for South Africans investing directly in US or UK stocks.
South African deceased estates are subject to SA's estate duty tax on their worldwide assets. However, UK inheritance tax and US estate tax are also levied on assets that are classified as UK or US situs assets.
'Situs' is Latin for 'position' or 'site'. The situs of an asset is generally the place where an asset is treated as being located for legal purposes.
3. Don't 'di-worse-ify'
While diversification is vital, it is possible to over-diversify or 'di-worse-ify' a portfolio. Spreading a portfolio across a myriad of assets without a clear strategy won't necessarily strengthen the portfolio or mitigate the risk.
Diversification should happen at country and asset-class level, across currencies, sectors and asset managers (where a multi-manager approach is chosen) – always tailored to the particular risk appetite of the client.
4. Eliminate the geographical mindset
Today's world is driven sectorally and thematically, rather than geographically. Hence, it makes sense to invest in a way that makes the most of these thematic opportunities. This means eliminating traditional geographical borders from your investment thinking.
This requires an open mindset from you, the investor. It's about matching your risk appetite with the decision to reach for opportunities beyond what is familiar to you, in order to reap maximum rewards.
Receive Focus insights straight to your inbox