How can I invest offshore and locally in a cost-effective manner?

I would like to consolidate and invest while reducing fees.

I would like advice on how to invest offshore and locally in a cost-effective method. I am a 37-year old, fairly – I think – financially savvy, and single with no dependents.

I have approximately R20 million with fund managers (Allan Gray/NinetyOne, Coronation etc) – these are split between equity and balanced and stable funds, the larger portion being allocated to balanced. Percentage-wise: 50% balanced, 30% equity, 20% all others including stable.

I have approximately R2 million with EasyEquities, with approximately R1.2 million in local companies and R800 000 in USD – I saw decent growth. Locally I am up approximately 45%, and USD, well I started recently so possibly 10% without considering currency exchange.

Then I have R3 million in money market type funds (easy access); a TFSA [tax-free savings account], which I max out annually at the given rate; a few other accounts accounting for approximately R500 000, again easy access accounts; and a further R13 million in a retirement annuity (RA).

I have a cushion in that I have no credit; the cash I have is there for growth. How can I structure my capital in a way that I have less costs upfront (especially with fund managers)? I don’t have a financial advisor – I advise myself for the most part. However, in reducing fees I have not been very successful.

My intention is to streamline the cash – fund managers have not really performed well over the last seven to eight years, returning approximately 5% to 8%. If I can consolidate and invest while reducing fees, that would be first prize. Thereafter I’d allocate proportionally to local and offshore and receive some revenue from the funds.

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Dear Reader,

Many thanks for your question.

The above information provides a substantial amount of information about your existing investment portfolios but contains very little information about your:

  • Personal/investment goals, risk tolerance and return expectation versus time horizon;
  • Career plans and retirement date; and
  • Estate/succession aspirations (although you are single currently, with no dependents or debt).

Financial advice, however, should speak to clearly defined personal finance objectives of the client. The investment and portfolio structure can change when the client’s objectives/circumstances change. As such, my answer is not going to go into the level of detail you desire. However, I will offer you some observations you should bear in mind when it comes to portfolio construction in general and financial advice in particular.

One of the questions confronting me while reading your original question was: “If the investment values per your original question were tenfold, as one day it would be, would your objective still be cost-saving, or would it rather be risk management/peace of mind?” I have therefore in my response added a zero to all the amounts you provided, for our wider audience to consider. The point I want to drive home, with bigger investment amounts, is that individuals generally need advice from a trusted specialist to enjoy peace of mind during retirement.

While one can find a lot of ‘free’ investment advice out there, it is (by virtue of its nature) only offered in a piecemeal manner. It offers a great way to educate yourself, but the danger is that answers that make a lot of sense individually will still not help the investor plan holistically. It takes an experienced financial advisor to string all these pieces together for their clients … It is comparable to building a quality wall versus building a quality house.

Thus, by focusing on the cost component alone, you may be doing yourself a disservice in the long run.

Reputable institutes (including Investment Funds Institute of Canada) and others such as Dalbar, Morgan Stanley, Vanguard and Coronation locally, have concluded that disciplined “principle-lead” financial advice delivers excess returns of 1.5-3% per year (after fees) to their clients. In short, don’t fall into the trap of thinking successful investment is just about saving costs. It isn’t.

However, I believe your financial savvy puts you in a great position to identify an advisor that can add value over and above their advice fee. This will provide the necessary reassurance so that you can rather focus on becoming an expert in your area of expertise and focus on retirement objectives during your retirement.

It is difficult to express a view on the existing portfolio as there are no matching financial objectives mentioned, besides costs and streamlining cash.

Cash, in my view, is a method of payment and should only be held for known obligations within 24 months. It is hence not an investment.

What rings true for me here is that “there is beauty in sophisticated simplicity”. Spreading your investment capital over more than one administrator does not necessarily improve diversification or reduce your risk. You also need to consider the spread of underlying investment instruments and the managers’ various investment styles. Despite using different managers, your underlying investments may behave more similarly than you think!

Dispersing capital via more than one administrator can become:

  • An administrative, management and succession nightmare; and
  • Investing sub-optimally from an admin fee perspective (economics of scale). Fees are not only taken on the advice level, but also by the product administrator (and in the funds). Therefore, it is very important to see that your admin/asset management fees (e.g. performance fees on some of your funds) are reasonable.

Portfolio management, in my view, optimally takes place within a “fund of funds” investment portfolio structure, where financial instruments are constantly valuated (and traded, if needed) by professional asset managers. The portfolio changes in these portfolios are made by unbiased/unemotional investment specialists (financial analysts) who constantly evaluate risks versus rewards. Fund changes within a fund of funds structure bear no capital gains tax implication to the client.

When it comes to financial planning, we all simply “don’t know what we don’t know” outside our areas of expertise. While we can view financial planning as an expense, research shows it is an expense that repays its own fees. The trick, however, is to find a financial advisor who adds value, whom you can build a long-term relationship with, and who provides the necessary peace of mind – which today is priceless.

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