When to invest offshore

Owing to the poor performance of the South African stock market over the last five years, many market commentators and investment managers have emphasized the importance of investing offshore. So have we, and the question most of our clients ask us is when they should do so. In principle, there are two factors to consider besides your risk profile and diversification strategy, namely the value of the rand and the price you pay for the investment.

If we look at the timing of converting your rands into, e.g., dollars you can consider the following statistics: If you bought dollars on the day the rand was strongest every year for twenty years, you would be 15% better off than the person who bought dollars on the day the rand was weakest over the same period. If however, you bought dollars every month irrespective of the exchange rate, you would be only 7% behind after twenty years. Although 7% is not insignificant, it is not enough to prevent you from the other advantages of investing offshore.

If we look at the second factor, namely the price of the investment, it should be noted that although it is easier to value a company than it is to value a currency, the unpredictability of shorter-term fluctuations will once again make it very difficult to buy in at exactly the right time. It will once again be beneficial to make regular contributions to a company or sector where the fundamentals are sound.

If we just look at the recent past, you might be surprised to know that the S&P500 is up 25% in dollar terms since Christmas 2018 and the rand is only about 3% weaker against the dollar.

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