What to consider when deciding to invest locally or offshore

There is a lot to consider when investing, especially if you want fruitful rewards.

One of the most important factors to consider is diversifying. Diversification is not simply about spreading risk across multiple asset classes and sectors, but ensuring the portfolio is well-balanced to mitigate any risks.

Wendy Myers, head of securities at PSG Wealth says investors should contemplate exposure to local and offshore shares, assuming their risk appetite supports it.

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Should you invest locally or offshore?

Myers adds there is no one-size-fits-all solution when it comes to investing.

“At best, the savvy investor knows the importance of investing in shares, as this is the single asset class that delivers inflation-beating returns over the long term.”

She advises people to start by investing in shares on the Johannesburg Stock Exchange (JSE), as this will provide access to inflation-beating returns and passive dividend income that is taxed at a lower level than marginal tax rates.

“If you choose wisely, you will also be able to access offshore markets by investing in dual-listed stocks without the need to set up an offshore stockbroking account.”

60/40 investment split

She says a good guideline for investors to follow is the 60% local and 40% offshore split, but the decision to follow this guideline will depend on the value of other local investments you hold, like property.

“This is where a financial adviser can guide you in making holistic investment decisions that take your full investment portfolio into consideration.”

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What are the differences you should be aware of when investing offshore?

Myers adds that the differentiating factor when considering investing offshore is the currency risk.

Investors who view their investment returns in rands will be impacted by the strength or weakness of the rand, which is why a 60% local and 40% offshore split is recommended.

She says there have been solid local share returns since the formation of the government of national unity (GNU), together with a strong rand.

“Investors who invested offshore and externalised rands at R19.50 to the US dollar (a rate seen last year when South Africa experienced stage 6 load shedding) are seeing their overall rand investment returns depleted. As such, it is important for investors to understand how the rand’s volatility can impact overall portfolio performance.”

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Key considerations for constructing offshore share portfolios

She says the key consideration when constructing a local portfolio is ensuring you diversity your offshore portfolio across various sectors.

“It is tempting to only want exposure to the ‘Magnificent Seven’ or the tech-heavy Nasdaq, but this will add to the volatility of your portfolio.”

One’s portfolio needs to show balance across different sectors. In addition to these considerations, make sure that you are aware of the different fees, as this will impact your portfolio’s performance.

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