Is offshore investing the next step in your diversification strategy?
Many South Africans’ finances are closely linked to the local economy. We typically earn in rands and live in homes priced in rands.
What we pay for goods and services is shaped by many domestic factors, including local inflation, interest rates, and economic policy. Global influences such as import prices also play a role.
Whether we realise it or not, a large part of our financial wellbeing depends on how South Africa’s economy performs relative to the wider world. If inflation rises, the cost of living increases. If the rand weakens, imports become more expensive, along with the services that rely on them.
Adding offshore investments to your portfolio can help spread risk, opening access to global markets where returns are driven by different economic policies, currencies, industries, and economic cycles.
If you’re wondering how to build more diversification into your investment and wealth-building strategy, here are three questions to consider.
1. Why should I look beyond local markets?
Beyond South Africa’s borders lies a much bigger investment universe. International markets offer a far wider range of opportunities than those available locally, giving you access to economies that grow at different rates and operate under different legal and policy frameworks.
You can also invest in sectors that are underrepresented in the local market, including some of the world’s most influential companies in areas like technology, aerospace, and luxury goods.
These extra layers of diversification allow you to build a portfolio that isn’t wholly tied to the same set of circumstances. This opens a broader set of options for managing risk and driving long-term growth.
2. Are all my investments moving in the same direction?
A well-diversified portfolio depends not only on the number of investment holdings, but on how well those investments work together. This is where the concept of correlation comes in, describing how different assets move in relation to one another as they respond to specific market events.
When two investments are positively correlated, they tend to rise and fall together. When they’re negatively correlated, one often moves in the opposite direction to the other. The goal in building a diversified portfolio is to include assets that don’t all move the same way at the same time.
This matters because no one can predict the future. If all your investments respond to the same set of conditions, such as interest rates or commodity prices, then a shock to one part of the market could affect everything at the same time. By combining assets that are less correlated, you aim to reduce the risk of everything falling together when markets come under pressure.
Offshore investments can play a key role in this, especially when they’re tied to different economies, industries, and currencies than your local holdings.
3. Do I have future costs in foreign currency?
Making offshore investments directly in foreign currency, such as dollars, pounds, or euros, can be especially useful if you are planning for a specific goal abroad. This might include sending a child to study overseas, travelling regularly, helping family members who live abroad, or even planning for a possible move one day.
In such cases, holding investments in the same currency needed later brings greater predictability. It removes the uncertainty of exchange rate swings at the wrong moment, helping to ensure that the amount invested will go as far as intended when the time comes.
Investing offshore doesn’t have to be complicated
It also doesn’t need to be an all-or-nothing decision. The right level of offshore exposure depends on your goals, income needs, and what’s already in your portfolio. There are different types of offshore funds to choose from, including options that cater to varying levels of risk.
To make choices that align with your long-term goals, it’s worth speaking to a qualified financial adviser and partnering with a fund manager who has proven experience investing in global markets.
Coronation is an authorised financial services provider.
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