Taking your clients offshore

Investing abroad should be just one component of a well-structured, diversified investment portfolio. There are only a few ways of doing so because the government limits the free flow of cash through exchange controls.

Here, in a nutshell, is some information that could give your clients a greater understanding of investing offshore.

There are several reasons why your clients should consider going offshore.

Firstly, it could reduce your client's risk. Taking money offshore is a good way of spreading their risk on a geographical basis.

Secondly, there are more stable, weighty markets abroad. If you consider that stock markets operate on the principles of supply and demand, it makes sense that the bigger the market, the greater the supply and demand cycle. More stable, mature markets in developed countries like the USA and UK are generally more stable investment bets than emerging ones.

Thirdly, the rand is a volatile currency which can be considered structurally weak. We have higher inflation than our main trading partners and we depend very heavily on exports. Our currency therefore needs to remain weak to make exports profitable and to allow us to compete with other emerging economies. In contrast, a weak rand makes imports expensive. We also have a lack of direct foreign investment due to concerns about AIDS, crime and unemployment and political volatility.

Direct investments

A very good way to start the offshore investment process is to investigate mutual funds because these spread your client's funds across different markets and asset classes around the world.

South African adults have a maximum allowance of R2 000 000 which they can invest directly overseas in an offshore fund or portfolio of assets. Here, rands are converted into foreign currency and invested in a range of possible vehicles abroad. In this regard, you need to advise your client to spread the money across a number of different asset classes abroad to decrease their risk. The aim is to make their money grow internationally in hard currency. Options include investing in listed companies which pay regular dividends or to invest in rental properties.

Local offshore products

Rand-denominated offshore products are rand-based funds and are a great way to gain extra exposure to international currencies once your client has used up their full offshore allowance. With these products you don't have to take your client's money offshore and are therefore not exposed to the currency risk. Most of these are managed from SA. You would need to inform your client however, that they would need to pay fees both locally and abroad.

Investing in international tank containers is a somewhat quirkier way of taking money offshore. And it has the benefit of having no ceiling amount. Your client purchases steel tank containers, which cost about R180 000 each, and receives foreign income from the rental paid by the companies who need materials transported. They can also sell their container to a foreign buyer and generate foreign currency in the process.

Don't wait for a weak rand

You should advise your client not wait for the rand to weaken before going offshore. When the rand is very strong, it is best for them to leave their funds offshore and when it is very weak, it may be a good time to bring it back. But the soundest advice is to keep as much as possible abroad indefinitely – this provides a permanent rand hedge and longer term financial security.