Investing offshore: A South African’s A to Z guide

Thinking of taking your money offshore? Whether you’re planning for long-term growth, funding future foreign expenses, or simply diversifying away from South African risks, offshore investing offers access to a broader opportunity set – but it also comes with rules, pitfalls and strategic choices.

This A-to-Z guide breaks down everything local investors need to know to get started or sharpen their approach: from understanding the offshore investment allowance to choosing asset classes and knowing when (and how) to hedge currency exposure.

Whether you’re a cautious first-timer or a seasoned investor, this guide helps you ask the right questions – and avoid expensive mistakes.

Offshore investing isn’t just for the ultra-wealthy. With the right tools, anyone can start thinking (and investing) globally.

Additional opportunities

South African equities make up less than 1% of global listed markets. Investing offshore provides access to broader opportunities across countries, sectors, companies and currencies.

Budget for offshore expenses and meet international goals

Offshore investments can help meet future international goals, such as travel, paying for your children’s education abroad or retiring in another country.

Cash is not always prudent

Holding money in a foreign bank account may appear straightforward, but it can be costly and complex when an investor dies. Growth is limited, and there may be unintended tax and estate consequences. A financial adviser can guide you.

Discretionary allowance

South African residents may invest up to R1m offshore annually without pre-approval. A further R10m foreign investment allowance is available each year, requiring tax compliance status verification from the South African Revenue Service.

Exposure to offshore assets

You can invest directly by converting rands into foreign currency, or indirectly through rand-based local funds that invest globally.

Financial adviser

A financial adviser can help you make informed decisions. As with any investment decision, it is never a good idea to invest offshore based on emotional reactions to short-term events. The decision to invest offshore should always be part of your overall financial plan.

Grow your wealth

Many global companies are exposed to growth opportunities not available in South Africa. There are a variety of funds that give you exposure to growth assets such as global equities. Investing in global equity funds broadens your investment universe and can help build long-term wealth.

Holistic view

Your offshore allocation should enhance the total risk/return of your overall portfolio. You need to look at your investments holistically, i.e. consider your offshore assets in the context of your domestic assets and your financial goals.

Inflation

Inflation is the silent enemy that erodes the value of money over time. Rising prices mean your money today won’t be able to buy the same goods and services in the future if you don’t grow it. Offshore investments can help protect your purchasing power.

Journey

Investing is a long-term journey, and the sooner you start, the better. Your investments need time to grow so that you can reach your long-term goals. You can invest for as little as R500 a month in a fund that has exposure to global assets.

Kids – staying connected and building family wealth

Many families are split across continents. Investing offshore can help you meet future expenses like visiting your children abroad or funding their overseas studies. It is also important to have a long-term plan to protect and grow family wealth. Diversifying your investments will help you leave a financial legacy for your family.

Legal framework

When you invest offshore, you need to consider the laws and regulations governing your investments, as there could be compliance, tax and estate planning implications.

Money market funds

If you have short-term offshore financial obligations, you could consider investing in a foreign-denominated money market fund (e.g. US dollar and sterling).

Negative returns

Nobody likes them. But if you invest in growth assets such as global equities, returns can be volatile. Markets can take time to bounce back. Managing your emotions is crucial because selling assets during market downturns will lock in losses.

Offshore – how much?

Retirement funds (provident, pension, retirement annuities and preservation funds) can allocate up to 45% of their assets outside South Africa. This does not mean that funds will always have the maximum offshore exposure; it depends on where portfolio managers find investment opportunities. Besides your retirement fund investments, you may wish to gain further exposure to global assets offshore. There is no “magic number”. Your optimal offshore exposure depends on your goals, risk appetite and overall portfolio.

Platform

Choose an investment platform that offers an extensive range of funds and products that cater for your local and offshore needs, where you can invest, manage and view your investments all in one place.

Quick buck

Investing offshore should not be treated as a quick way to grow your stash of rands. Market and currency moves are unpredictable, so avoid short-term speculation. Have a long-term view.

Risk mitigation

Diversifying your investments across different economies and markets reduces the impact of currency depreciation or political and market events on your wealth. This also means that you are more likely to stay invested, improving your long-term investment outcomes.

Statistics reveal a long-term trend

Ninety One’s analysis of its investment platform data shows that the typical investment horizon for offshore investments is more than 20 years. If you invest for the long term, it is important to invest in assets that will grow your money over time.

Tax-free savings accounts

TFSAs allow you to invest up to R36,000 a year (and make a lifetime contribution of R500,000) without paying any local tax on the returns earned. This includes interest, dividends, and capital gains.

Unit trusts

Unit trusts provide a convenient route to invest offshore. There are a variety of funds from which to choose, covering different asset classes and risk profiles. You can gain offshore exposure using rand-based unit trusts or foreign-denominated global unit trusts.

Volatility

You can expect to experience fluctuations in the performance of your fund(s) due to market or currency moves. If you have chosen funds to grow your wealth over the long term, avoid focusing on short-term changes in performance.

Why invest offshore?

Offshore investing provides diversification benefits, helping to reduce investment risk and enhance potential returns.

(e)Xchange rate

Over the long term, the rand has consistently depreciated against the dollar, but we have also witnessed extended periods of rand strength. When investing offshore, don’t try to time the currency. Focus on constructing a globally diversified portfolio that will help you build wealth over time.

Yesterday is gone, what are you going to do today?

Whether you invest monthly in a fund or make a lump sum investment, the sooner you start, the sooner your money will have the benefit of compounding. Even small, regular investments can grow significantly over time.

ZAR

You don’t have to exchange rands for euros, sterling or dollars to invest offshore. There are a variety of rand-based funds that can give you exposure to international assets. Some funds will give you full offshore exposure, such as rand feeder funds, while others offer you exposure to a mix of local and global assets.

Offshore investing is a practical way to align your finances with an increasingly connected world. With the right guidance, it empowers everyday investors to take advantage of opportunities beyond South Africa’s borders.

Leone Hitge is an investment marketing manager at Ninety One. She holds a postgraduate diploma in financial planning from Stellenbosch Business School.