If you care about your physical health, you can either visit your doctor for an annual checkup, or only go when you feel sick. If you have your annual checkup regularly, the doctor will detect any possible signs of illness and prescribe preventative measures. If you go only when you already feel sick, you may already be in an advanced state of a dreaded disease. Exactly the same principle applies to your financial health; and you should regard your financial advisor as your financial doctor.
The responsibility of a financial advisor is not only to achieve the highest returns on a client’s portfolio, but also to balance that return with that client’s specific risk profile. Diversification is a powerful tool to manage the risk of any investment portfolio, as investing all your money in the best-performing asset class today, will nine times out of ten result in an underperformance in the future. The task of the financial advisor is to make sure that whatever the circumstances, there will always be one part of your investment portfolio from which you can withdraw money without incurring a loss. Over the last five years that “fall-back” asset class has been offshore equities – owing to the weakening of the rand; the surge in the US share markets; and the mismanagement of our economy by the South African government. During the five years before that, the fall-back asset class was South African property and before that again, South African equities.
Every Tom, Dick and Harry will advise you to take your money offshore at the moment. We agree, but only as part of a diversified portfolio, and we take the following into consideration:
The rand broke through the R14/$ barrier on Thursday, although it was only for a short time. It is still hovering around the R14/$ mark currently, which is 3% stronger than at the beginning of the year. As we have said before, the level of the rand is only one factor to consider before making international investments; the other significant one being the valuation of the investment you make. As the rand broke through the R14/$ level, the S&P500 broke through the 3000 level, the highest it has ever been. Consequently, you may be wondering whether it is not already too late to invest offshore now? The answer can be summarized as follows: Although the equity index in the US is expensive, you will always find individual companies that are not. On top of that, with the rand getting stronger, you can buy more dollars with which to buy these shares; and the third critical reason to invest offshore is diversification.
We do believe that there are investment opportunities that you can find only outside South Africa, but buying them at the right price and in the right quantities remains crucial.