How can a 55-year-old go about investing offshore?

You have the option of investing directly or indirectly depending on your preference and circumstances.

I am 55 years old and started investing only a couple of months ago in a retirement annuity, around R15 000 per month. I also have tax-free investments and an emergency fund. I seriously want to invest offshore. I have spoken to my financial advisor but he is not too keen. Please advise me as to how I can go about investing offshore.

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Dear reader,

Thank you for your question.

Firstly, we would like to commend you on taking the first step towards building a portfolio of investments; you are on the right path. Offshore investing is a good way to achieve capital appreciation, as you are awarded the opportunity to spread your risk across different economies and geographic regions. Considering the volatility of the rand, offshore investing is a good way for one to expose themselves to better or developed markets.

There are a few ways to invest offshore.

Direct offshore investment

  • With this type of offshore investment, the investment will have underlying funds that are foreign currency denominated.
  • When using this method to start an offshore investment, you can invest using rands and they will be converted into the fund currency that you choose to invest in.
  • If you are already in possession of foreign currency all the better, because then you would have the choice to simply transfer your funds directly into the product provider’s account.
  • Therefore, depending on the foreign currency funds available from the product provider, you may choose the fund you would like to invest in.
  • These funds range from US dollar, Australian dollar, Hong Kong dollar, and British pound funds.
  • A minimum investment starts from R20 000 to R50 000, depending on the product provider you choose.

Indirect offshore investment

  • With this type of offshore investment, the investment will have underlying funds that are rand-denominated.
  • When using this method to start an offshore investment, you can invest into a unit trust with funds (feeder funds) that have exposure to offshore markets.
  • There is no need to convert your funds into another currency as the underlying funds are rand-denominated.
  • To start investing you may choose to use the debit order option, which usually starts from R1 000 per month or invest a cash lump sum.
  • To further diversify your retirement annuity, you could also choose underlying funds that have exposure to offshore markets; this allocation is however limited to 45% offshore.

When investing directly offshore it is important to know that you can invest up to R1 million without having to apply for a tax certificate; any amount above R1 million will need a tax clearance from the South African Revenue Service. The maximum you can invest offshore per year is R11 million. When making withdrawals and switches, this may trigger capital gains tax.

Investing offshore could expose you to different types of risk like exchange rate risk and geopolitical risk. It is important to consider the time horizon so that if the markets do not perform well, your investments can still recover.

It is always wise to use surplus money instead of money that you might need any time soon, because the goal is to invest long term to achieve capital appreciation.

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