The JSE is struggling. Property prices are stagnant. The political scenario is volatile. Is it time for South African investors to take a greater portion of their savings abroad to try to preserve their money? Yes, but make sure you're doing it in the right way, and for the right reasons, says Coreen van der Merwe, the managing director of Sovereign Trust.
Investing offshore shouldn't be a knee-jerk reaction to current affairs, but a well-thought-out process that forms part of your overall financial plan, says Van der Merwe.
You don't want to put all your eggs in one basket. Diversification is important, but it's equally critical to make an informed decision when choosing to mitigate savings and wealth risks by spreading investments offshore, says Van der Merwe.
Some offshore jurisdictions - such as Malta, Gibraltar, Guernsey and Mauritius - allow clients to hold assets anywhere in the world in foreign currency, making them popular among South African investors, says Van der Merwe. But while saving for medium- to long-term financial sustainability is vital, there’s no one-size-fits-all approach.
That’s why, when investing offshore becomes a consideration, it’s important to have a clear picture of the currencies, returns, fees and taxes associated with the different options, and the respective risks need to be managed from the outset, she says.
In some cases, fees can end up being significant, to the point where they result in an ongoing shrinkage of offshore assets. And if an investment is held in the name of a company, trust or pension, there will be director or trustee fees on top of the advisory fees.
Investors in some European jurisdictions often pay significantly more in fees with no extra added benefits, compared to investors in countries such as Mauritius, says Van der Merwe.
Another factor to consider is tax. Holding offshore assets in tax-inefficient structures is a sure-fire way of depriving investors of value. If you have a structure offshore, it is worth considering a review to ensure that it is still tax-compliant in light of recent changes in South African legislation.
The decision to distribute wealth offshore is a sound one - but there are pitfalls along the way for the unwary investor, such as exchange control and cost considerations, which must be taken into account and fully appreciated.
That's why anyone looking to establish an offshore asset base should use a reputable investment and trust company to assist, and get appropriate investment, tax and legal advice from the start, says Van der Merwe.