Investors need to be wary of increasing offshore investment as a result of altered exchange regulations

South Africans considering increasing their offshore allowance to take advantage of the recent changes to foreign exchange regulations should be wary of doing so just because they are now able to. This is according to Jonathan Brummer, Financial Planning Coaching Support Consultant at acsis.

The adjustments made to the foreign exchange regulations include altering the offshore investment limit per individual from a limit of R4 million per lifetime, to a limit of R4 million per annum. The single discretionary allowance of R750 000 was increased to R1 million, and the limitations on blocked assets for emigrants were lifted.

Brummer says that when considering reallocation of offshore investments, investors should look at it from both from an investment planning as well as a broader financial planning perspective.

He says that a client’s investment strategy should be put together to achieve a specific goal. “This strategy may include an offshore investment component. Offshore assets are included in investment strategies as they behave differently to local assets and thus offer diversification benefits. Investing offshore also allows access to opportunities that are not available in SA - investing in Google or Microsoft for example.”

Brummer says that the percentage of offshore assets that should be included in investment strategy will be influenced by the goals being targeted, the relative value of offshore asset classes and to some extent a view on the strength of the Rand compared to other currencies. “The important point here is that the amount that the state allows is not a factor – it merely acts as a constraint to implementation and is only relevant for larger investment sums.”

He says that the same line of reasoning should be followed from a broader financial planning perspective. “Offshore assets are included in portfolios for a number of goals, such as settling liabilities, planning for holidays or funding education. The point is that the increased allowance only becomes important when these needs could not be met because the R4m total allowance acted as a constraint. In this case the increased annual allowance can be used to better achieve these goals.”

Brummer says that offshore asset exposures should be determined based on the specific lifestyle goals being targeted as well as the investment merits of each asset. “The amount of the offshore allowance is merely a constraint to effective implementation. Unless investors were eagerly looking to increase offshore investments before the time, they shouldn’t do so now just because they are able to.”