The famous chorus line from a 1981 song by the English punk rock band, The Clash, has been looping in the minds of some South Africans of late. This is understandable with the current state of the SA economy and the concerns of whether Government has the understanding, ability or will to lead this country to a recovery. While I wish I could paint a sunny picture the reality is that many are considering their options. I will make no attempt to address the far more complex and emotional issues related to emigration, in this letter. I will however address some of the thinking around offshore investing and its relevance in the current situation South Africans find themselves in.
I think this may be far more informative if I answer some of the common questions we receive.
Why should I invest offshore?
If I gave you $1 million and sent you to the moon to look at planet earth and asked you to choose countries to invest in, how much would you allocate to that small country on the southern tip of Africa?
In short, the world is so much bigger and there are so many more investment opportunities than SA. Countries can thrive at different times and can grow at different rates always providing opportunities for diversified returns. Apart from the essential requirement of diversification when investing, your wealth is maintained in real terms globally.
The primary aim of investing offshore, diversification and investment opportunities aside, is the ability to maintain your wealth in real terms by being invested in hard currency assets.
This can often be misunderstood as a bet against the Rand. While future 5-year prospects suggest the Rand will be under pressure against major currencies, it is not advisable to base your decisions as purely a Rand bet. The reason being once you have taken your money offshore you need to think of yourself as an offshore investor with the aim of maintaining and growing your wealth in real terms. You should be comparing your outcomes to those of foreign investors. If you convert back to Rands continuously the returns might be flattered by a weak Rand. When the Rand is strong you may be disappointed when in fact you should recognize that your local assets are now worth more in real terms. Considering that offshore investing is about maintaining your wealth in real terms you may now realize why it is important to separate the way you think about local and offshore investing.
How much of my money should I take Offshore?
The simple rule has always been to leave enough money in SA to cover your local liabilities and to take the balance offshore. This means that in some cases people may not be able to take money offshore or it might not be prudent to do so. It is not a one size fits all. In most cases the ability to take money offshore is often coupled with the fact that it is not needed locally so investors have a longer investment time horizon allowing them to invest in more growth orientated portfolios. For many earning an income and already contributing to retirement products it becomes possible to consider offshore investments. Talk to one of our Harbour Wealth advisors as the entry amounts are lower than most think. Many clients ask how much money they would need in USD to retire offshore and the old rule of USD 1 million in investable assets allows you to retire and get by in most countries and USD 5 million in investable assets allows you to retire well in any country, still holds.
I have money offshore can you help investing it?
This is often more complex than it appears. Firstly, with Global Common Reporting Standards (CRS) on source of funds, it is important that the source of funds can be proven to be legitimate. This will be critical to us being able to move and manage the money in appropriate portfolios. In addition, often funds are held in the client’s name offshore in locations like the US or UK where SITUS Tax and Probate, both taxes on your estate at death, can be extremely high, around 40%. These jurisdictions will also require an offshore will, failing which gaining access to the funds on death, can be complicated, expensive and time consuming. Fortunately, there are some very elegant and efficient ways of solving these issues. It can make a significant difference to your outcomes to receive advice from one of our experienced advisors on the appropriate solution for yourself if you are facing any of these dilemmas.
How do I get money offshore?
There are two ways of doing this as a SA resident. You can use asset swap which means that you invest in offshore markets in Rands. The result being you get the return of global markets including the movement of the currency however you will pe paid out in Rands in SA.
The other option is direct offshore investing where you take your money and exchange it into hard currency and send it offshore. You can invest in Dollars, Pounds or whatever currency you choose. In the case of direct offshore investing you can take out up to R1 million as your Discretionary/ Travel allowance annually and/or R10 million rand per annum where we assist in getting you an exchange control clearance. It is straightforward and less daunting than it sounds. With direct investing you get your returns in hard currency and can keep them offshore in hard currency.
How do I access investment opportunities?
At Harbour Wealth we have established good relationships with offshore partners in both Switzerland and Isle of Man amongst others. These banks and investment platforms allow us to access any investment products on any exchange globally. Our advisors can assist in setting these up for you should you have an interest.
To conclude. These challenging times are forcing people to think in ways they previously never would have. We as South Africans have a complex history and have proven to be very adaptable to date. The reality is that further adaptions might be required to continue living in this amazing country. There is no doubt that we all hope that once again we will find the South African magic to pull us through. While we all hope for the best it is prudent to assess what we can do to manage the risks and ensure that whether you stay or go that you don’t end up as in the next lines in the chorus.
“If I go there will be trouble
And if I stay it will be double”
Should you have any further questions or wish to explore any options discussed in this letter please get in touch with one of our experienced advisors. As a family office we will do all we can to ensure that you are set up in the best possible way to ensure complete financial peace of mind.