By now, it should come as no surprise to hear that South Africa has been downgraded by numerous ratings agencies resulting in many people enquiring about offshore investing. Given the recent strong Rand and political instability, I tend to agree, however, some people are taking shortcuts that could leave a person in financial distress at the risk of declining wealth.
Before investing offshore, you must ensure that you have ticked the following boxes in terms of your personal finance:
- Ensure you have emergency funds available.
- Ensure your retirement planning is on track.
- Ensure sufficient funds are available to achieve your short-term goals (1-5 years).
It may sound simple, however, failure to adhere to these steps could leave you with serious financial problems. Over and above the aforementioned, the offshore market is extremely volatile and is currently very expensive to buy into. Even the offshore low risk asset classes, namely, bonds and cash offer very dismal returns with a meagre outlook. Many countries have extremely low interest rates with no-to-low inflation. Both Sweden and Switzerland have negative interest rates (at the time of writing this article), meaning that if you place your money with the bank, you will pay the institution interest to bank your money. This, in comparison to South Africa’s bond market that currently yields between 8.5% & 9.5% with minimal risk.
In summary, offshore investing has many advantages and is a must for a well-diversified portfolio. However, one needs to approach it with a careful thought-through plan and a long-term outlook. If you are interested or would like to find out more about investing, please contact me.
Stephan Steinmann CFP®