Can I invest offshore without a broker?

I would like to invest in offshore exchange-traded funds (ETFs) without the assistance of a broker. I’m interested in European and US funds, but am not sure how to go about investing. What platforms can I use?

Offshore investing is a matter many people would like more insight into. Investment planning can be quite complicated, and there are some who seek to make things more complicated to discourage the layman investor. It doesn’t have to be this way. To be a successful investor you just need time, access and knowledge. Know that everyone is a genius in a bull market. When a correction comes, and your portfolio declines in value, that is when good advice is worth paying for. Nonetheless, it is your money and you should make the decision that best suits you. Don’t be scared or intimidated into making use of an adviser. Just ensure that you are making informed decisions about your money. Your choices must be made in the context of your financial plan. Your personal circumstances and risk tolerance should govern how much of your portfolio you should take offshore and into which asset class.

Why offshore?

Investing in international funds is a growing trend among South Africans. This is largely due to the negative connotations we have developed around our steadily weakening rand coupled to the political environment. Such factors nudge investors into seeking the benefits of diversifying their assets and wealth beyond our borders in regions with stronger currencies.

Another reason international funds continue to attract attention is that investors now have access to unlimited information. No longer are investment managers the sole gate-keepers to attractive investment opportunities. As investors become more self-reliant and emboldened, they are quick to realise this simple fact.

The SA economy makes up less than 2% of the global economy and diversifying offshore thus presents greater potential value by allowing for a wider variety of investment opportunities. Some of the best companies in the world are not listed on the JSE. The likes of Visa, Stryker, Kone, Google, Apple and Facebook are prime examples. So, not only can we diversify currency-wise and geographically with greater ease, we can also add different types of organisations to our portfolios in our efforts to build wealth.

We see this trend in companies too. The bulk of recent expansion by SA companies is offshore rather than in South Africa. They are doing this to have diverse sources of revenue and profits, and as previously stated, because of the limited investment opportunities and heightened political and economic risks in South Africa.

Understanding what an ETF is

ETFs are exchange-traded funds. As the name suggests, they are funds that are traded on public exchanges. What this means is that you can buy and sell the funds exactly as you would buy and sell shares. ETFs can be thought of as a basket of underlying securities traded as one item. The underlying components can be almost anything – from shares and bonds to precious metals, real estate, mortgages, commodities and so on.

For most passive retail investors, ETFs are the holy grail that make up the bulk of an investment portfolio. They give you the ability to set up a well-diversified portfolio of different investments with a small amount of capital. A portfolio consisting of a range of ETFs can offer substantial sector and geographical diversification, and allow you to tailor your portfolio in line with your individual attitude to risk.

What does the law say?

Currently you can take up to R10 million a year offshore subject to tax clearance, and up to R1 million without tax clearance. You can then leave the money in a foreign bank or invest it in any number of investment vehicles which would contain, for instance, direct shares, unit trust funds and exchange-traded funds (ETFs).

If you’d like to invest more than R10 million in a calendar year, your bank must apply to the Financial Surveillance Department of the South African Reserve Bank for approval. A Tax Clearance Certificate, in the prescribed format, must always accompany the application.

It’s important to note that your choice has a tax implication. Make sure you understand what those tax implications are before proceeding.

Which platform should I use?

This is perhaps the hardest part to answer. These days almost every available Linked Investment Services Provider (Lisp) give investors access to offshore funds. Look around and choose the one that best suits your investment strategy.

When looking for a lisp to invest through, look for the following:

1. The administration fee charged by the platform. The fee is calculated based on the size of the investment. It is best to consolidate all your investments on a single platform. This way you get the benefit of scale.
2. Look at the accessibility the platform provides to various investment vehicles. This is important when you want to diversify your investment portfolio.
3. Online functionality is a key feature that an investment platform should have. Can you submit your own instructions to switch funds, make a withdrawal, make an additional contribution, amend your monthly debits online 24/7 and so on – without having to fill in a form?

If a Lisp doesn’t at least offer the above, don’t use it.

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