Tracy Jensen, Investment Strategist at Nedgroup Investments discusses what to consider when planning to invest internationally, and practical steps you can follow to take your money offshore.
To watch the recording of the webinar, please click here.
Many people are interested in investing internationally but are often unsure and fearful of where to start. To unpack international investing we can apply Simon Sinek’s golden circle and start at the centre which is the ‘why’. There are different reasons why people want to invest internationally, and it is important to know what your reasons are, as these will determine which type of international investment will be right for you. From there we will move on to the ‘what’ where we will unpack what the investment options are and then lastly close off with the ‘how’, showing you how you can practically start investing internationally.
Why exactly do you want to invest internationally?
Before we talk about why people invest internationally, let’s start with what international investments are. There are shares listed on the Johannesburg Stock Exchange which are considered South African shares, but what is quite interesting is that if you look at the 40 biggest companies thee is that more than 60% of their earnings actually come from international sources. So, despite the fact that they are listed in South Africa, they have a fair amount of international earnings and some of the examples of these are Steinhoff, Naspers and Richemont.
But for this conversation, we would like to focus on international shares and other investments that you would purchase outside of South Africa. So, you would take your rands and convert it to the relevant currency and purchase for example, Facebook, Apple and Alibaba.
Reason 1 - Diversification
If you had to draw a map and had to represent each country by the size of their economy, you would see South Africa is less that half a percent of the global economy. So that is a really, really small basket to fit all your eggs into and many people have this idea that they do not want to be so concentrated in such a small country and want to spread those investments across multiple countries.
Reason 2 - Rand depreciation
Another reason, is that people are concerned about the long term and whether the rand is going to depreciate and potentially limit their future options.
Reason 3 - Access out of South Africa
While a little bit more vague, some people have this notion that their money may be safer out of South Africa in terms of political risk. There are also other reasons why people want access to money outside of South Africa, such as paying foreign university fees for their children or people that are considering emigrating to join their children.
These are the 3 main reasons amongst a whole host of others, but it is important to give it some thought so that you are clear on what your most important reason is.
Ways to access international investments
There are 2 main options when it comes to international investments. Option 1 is international investments accessed in SA in rands and option 2 is international investments accessed outside of SA in a foreign currency.
The first option provides you with access to international investments in rands in South Africa. This is a simple way to access international investments and means not going through the trouble of going to the bank to get forex done or being subjected to high minimums. Effectively you are using the offshore limits of an organisation like Nedgroup Investments who will take care of that aspect of things for you.
Then option 2 is taking your rands, converting them to another currency like dollars or yens or pounds and then buying an international investment that is outside of South Africa.
And when it comes to diversification of your portfolio, if that is your main reason, both of these options will tick that box. The reason that option 1 ticks that box is that an organisation such as Nedgroup Investments would take that money and convert to the into different currencies and go and buy the exact same investments that you can buy when using option 2.
In terms of currency depreciation, both will give you protection. The reason that you are getting that protection with option 1 is because although you are putting the money in and taking it out in rands, you are still invested in a foreign currency and you will get growth on that money if the rand depreciates.
The main difference in these options is how you access the money. With the first option you cannot access the money outside of South Africa and if your main reason is the ability to do that, then this may not be the option for you. Of course, you can opt to do a combination of both option 1 and 2.
There are two variations with option 1. You can choose to invest in a fund that only has a portion invested internationally, but the more relevant variation is a feeder fund, which is effectively fully invested offshore.
Then comes the question of simplicity. With a feeder fund, accessibility from SA it means low minimums, the ability to set up debit orders and you do not have to worry about forex. Whereas an international fund can be a little more complex, where you cannot set up a debit order or monthly withdrawal because of the limitations and requirements of the Reserve Bank, and the minimums are a bit higher. However, do not let that put you off as we have a team that can help you every step of the way.
Another consideration is the differences in tax. For example, when you withdraw money from your feeder fund, capital gains tax will be applied on the growth in the foreign currency and if the rand has depreciated, you will also pay CGT. However, in an international fund you will only pay capital gains tax on the growth in the foreign currency.
So how do I go about doing this at Nedgroup Investments?
3 things to decide before investing internationally:
- Decide how you want to access your money
- Make sure your tax affairs are in order if you plan to take more than R1m outside of SA in a calendar year
- Decide on the fund(s) you want to invest in
To invest in our feeder fund, you will need to
- visit our website www.nedgroupinvestments.com
- click on Invest with us and then click on Invest locally and follow the digital onboarding: entire process < 10 min
- you will need a digital copy of identification
If you need any guidance or help along the way our team is here to assist.
- 0860 123 263 or +27 21 412 2003 (if outside SA)
To invest in an international, you will need to
- apply to the South African Reserve Bank approval if over R1m
- visit our website www.nedgroupinvestments.com
- click on Invest with us and then click on Invest offshore
- then click on Start investing to select a form
- download and complete the physical application form
- provide physical certified copy of identification
- provide physical original or certified copy of proof of address
- go to your bank / other party to do forex transaction and send proof
If you need any guidance or help along the way we are here to assist.
- +44 (0)1624 645150 or 0800 999 160 (toll free in SA only)
Tracy concluded the session by answering some questions from the attendees, and you can watch these on the recording here.