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The R1 million ticking clock. Where will you invest before 31st December?

by Mike Abbott | Nov 20, 2014
  • Until 2011, South Africans were able to take out R1 million out of the country each year without tax clearance for a number of limited options; travelling, study, alimony and gifts being the most common. However an announcement from the Financial Surveillance Department changed this: now foreign investments have also been included within the allowance. Yet as the calendar year draws to a close, many South Africans still haven’t taken advantage of this unique and lucrative opportunity.
    1 million ticking clock

    Why go to the effort of moving your money abroad? The main reason is that doing so will help you diversify your portfolio. This should be an essential part of your investment strategy: diversification increases your opportunity for gain while reducing your risk of being over-exposed to any one market. One of the traits I find most interesting about investors, and a topic I have previously covered, is their tendency to invest their money in their own country. In South Africa, for example, investors currently have a “home bias” of between 83-84% towards domestic equities.

    However, this is not just a South African phenomenon: even the US has a home bias of around 76%. The difference between the two is that South Africa represents a much smaller share of global market capitalisation than America – with just 1% to America’s almost 47% dominance. This inevitably means that investors who bias their portfolios towards the South African market are exposed to a very small share of the global markets, and so are in a more vulnerable position. To overcome this, South Africans need to seek out opportunities to invest abroad.

    Lots of South African banks say they offer their customers the opportunity to invest offshore, but in reality very few of these options are as diverse as they could be. There are several reasons for this: thanks to exchange controls and regulations, it’s hard for the banks to provide viable offshore solutions, or portfolios that give as large a share to offshore markets as they should. (Remember: Asset Swaps can be reversed at the behest of the SA authorities at any time!). This only makes it harder for South African investors to go about moving their money offshore.

    This difficulty makes it even more important for financial advisors to be able to provide a satisfactory answer to what is perhaps the most obvious question a South African investor might ask: “If I’m investing money abroad where should it go?” There is no one right answer to this question but I want to share with you the advice I give my own clients: ensure your portfolio is internationally diverse by investing outside of the country, but also think carefully about the jurisdiction you use to hold your investments. For example, the huge investment industry in the UK and Channel Islands has had a positive effect on costs. Although your money is held in one place it should be invested globally through a fully diversified low cost investment portfolio designed for your needs and risk profile.

    I would also suggest South Africans should work with well qualified advisers in regulated jurisdictions. Firms with links to South Africa can help residents finalise their offshore investments in just two weeks. This quick turnaround is useful as South African residents hoping to take this route need to do so before 31st December. Those who would like to remit more than the limit can use their 2015 allowance from January, providing a real boost to their international investment portfolios.

    South African investors need to seize any opportunity they can find to invest abroad and diversify their portfolios. This will allow them both to take advantage of the economic growth in other countries and, at the same time, to get some protection from the notorious volatility of the ZAR, not to mention South Africa’s twin deficits and various political issues that hold the South African economy back. At a time when the political climate in South Africa is becoming increasingly anti-market; and when the Rand continues to sink in the currency markets, keeping all of your assets here makes little financial sense.

    For more information on the topics covered in this post, or for any other wealth-related queries, you can contact us on +44 (0) 20 7759 7519 or email our wealth team.

    We are a professional services company that specialises in cross-border financial and immigration advice and solutions.

    Our teams in the UK, South Africa and Australia can ensure that when you decide to move overseas, invest offshore or expand your business internationally, you’ll do so with the backing of experienced local experts.

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