There is this strange phenomenon in SA called Regulation 28 that is applied to retirement funds. It stipulates that retirement fund members may not have more than 75% of their funds in equities and no more than 25% of the fund invested offshore Continue reading A case for higher offshore weighting within a living annuity?
There are essentially 2 emotions that drive human behaviour when it comes to money: fear and greed. Both of them can result in investors behaving irrationally and this can result is significant financial losses if we are not careful.
For many South Africans there is currently a lot of fear around the future – it certainly looks like SA Inc is doomed (well for the next 5-10 years at least) and at times like this it is easy to panic and want to sell the house and take all the proceeds offshore. However, while having funds offshore may make you feel better about things, it might not be the correct thing to do financially.
Investing requires time – but investing offshore requires even more time. This is because you not only subject yourself to the volatility of the markets but also the volatility of the currency. It is possible that you get a double negative on your money – weak offshore markets and a stronger rand at the same time.
If you don’t think this is possible, ask anyone who took funds offshore during the first 3 months of 2016 – we hit almost R17/US$ (we are currently under R14/$) and we touched R24/GBP (R17.1/GBP currently). Those are significant short term losses as a result of currency movements*.
The point is this – take money offshore by all means but make sure that:
• You have a plan in place for investing and that this forms part of your long-term plan.
• You don’t need the funds for at least the next 10+ years and possibly longer.
• You don’t need to draw income from the funds at any stage.
• You don’t leave it sitting in a bank account offshore.
• Don’t put it into an insurance backed product – use unit trusts and ETF’s as far as is possible.
• It is also probably not a good idea to borrow money to take it offshore – there is a very real chance that interest rates could go up by a few % points over the next few years which might make the repayments on the loan impossible. If this corresponds to a period of currency strength and market weakness, you could end up in a real cash-flow crisis
*for anyone who can remember back to 2001/2 – the rand almost hit R14/$ and then fell right back to around R5/$ over the next few years.