Ignore the naysayers and give SA credit where it’s due

Just because you can invest 45% of your retirement funds in a (Rand denominated) offshore fund, it doesn’t mean you should. The actual percentage to take offshore is going to range anywhere from zero to 100%, depending on your plans, your age, the value of your investments, your income expectations at retirement, your risk tolerance and another dozen or so variables. Financial planner Dawn Ridler says it’s really hard sometimes not to get sucked in by all the negativity – and reminds us that in RSA we are lucky enough to have high yielding asset classes like bonds and even money markets that can produce an income and still have some left over to top up the investment pot, without having to sell off any part of the capital. Her top tip is to be flexible and open to alternatives; and not allow negative fear-mongering to influence one’s decisions. – Sandra Laurence

Unpopular opinion – investing everything offshore

By Dawn Ridler* 

Dawn Ridler

When you’re bombarded with negative news about SA Inc and its prospects from every quarter, it takes courage to make up your own mind and not get sucked in by the naysayers. In 2020/2021 these doomsday pushers had a field day, and we are still coming across clients who reacted in haste when the exchange rate or markets were all over the place and are now repenting at leisure. The twitter feed was full of recommendations to do asinine things like cash in your pension, choke down the massive tax bill, and move everything offshore. The theory was that the Rand depreciates so massively all the time and the JSE shows no return, so you’ll make up the tax loss in no time at all. 

The first thing to do is get things in perspective and align your values with the media you consume. Naysayers, negative news purveyors, Doomsday addicts never grow anything (except their own back pocket). It is only positive, confident people (however deluded the naysayers may think they are) that build anything – companies, countries, wealth. It’s really hard sometimes not to get sucked in by all the negativity and we humans are wired to look for ‘confirmation bias’ – people who think and say what we feel. They validate our feelings, and we would rather ignore the alternative viewpoint. That is too uncomfortable. 

The state of South Africa as an investment destination comes up in almost every conversation we have with our clients, and our answer has stayed the same throughout. Have a plan. Spend time with a professional advisor and see what your options are. 

In our experience, when a client moves either their money or themselves offshore in a hurry, and without careful consideration, it always ends badly. 

Emigration: The older you are, and the more assets you have here, the more difficult and expensive it is to make a clean break with RSA Inc – and if you make a quick impulsive move, you are going to hammer your wealth in the process. You now have to emigrate through SARS rather than the Reserve Bank, and as with everything SARS related, this only adds to the complexity. This has spawned a lucrative career for emigration specialists who charge substantial sums to do the leg work for you (mostly sitting on cold hard SARS chairs for hours at a time). This is the time to work very closely with your financial planner and emigration advisor. You need to set yourself up offshore properly before pulling the plug this side. This is not just securing a job, but getting a handle on the daily expenses, tax, and way of life. 

Investing offshore: Offshore exposure in your investments is important. There are high growth, high potential asset classes and sectors that we just do not have in SA Inc. The likes of Google and Microsoft, for example. 

The first consideration is how much to take offshore? Should you really be pushing every last cent offshore, or is there a magic number? This is where you need a financial planner, more than anything else, to talk you off the “fear” ledge. If your planner/advisor/broker is adding fuel to your fear – run! This is a grubby sales tactic to make you part with your money and line their back pocket. Just because you can invest 45% of your retirement funds in a (Rand denominated) offshore fund, it doesn’t mean you should. The actual percentage to take offshore is going to range anywhere from zero to hundred percent. It will depend on your plans, your age, the value of your investments, your income expectations at retirement, your risk tolerance and another dozen or so variables. 

Once you and your planner have determined the proportion of your investments that should be ‘offshore’. There are countless ways to get that exposure. You don’t have to physically take funds offshore to do that – there are Rand denominated funds that invest in those assets. This is a good place for someone to start and accumulate funds until they reach a critical mass to consider taking them physically offshore. There are numerous ways of taking the funds physically offshore, from using vehicles set up by South African companies (Old Mutual, Allan Gray etc) to trading accounts and investment banks. You can use Mutual Funds, ETFs, shares, commodities, real estate  – in hundreds of countries and there are tens of thousands to choose from. This is confusing, and believe me there are plenty of characters in this industry who will exploit that. Look out for deceptive no-brainers. Passive income from real estate in the US sounds perfect – right? Estate duty fears? We have just the right Trust/Quasi Trust for you. 

Retirement and investing offshore: Retirement is a financial event, and it has nothing to do with age. It is that time when you stop accumulating wealth, and now turn the switch 180 degrees, and get that investment to produce an income for you – which has been its objective for decades. Surely it doesn’t matter if that investment is here in SA, or offshore? Not so fast…

The most prudent way to generate said income is to use less than 4.5 to 5% per annum, giving the investment time to recover and ensure the capital never runs out. None of us know exactly when we are going to pass on, and the last thing we want to do is have the money run out before we do. If a broker advises you any differently (or if they bow to pressure from you for ‘more’), then understand that when the money runs out, they are going to be long gone.

In RSA we are lucky enough to have high yielding asset classes like bonds and even money markets that can produce an income and still have some left over to top up the investment pot, without having to sell off any part of the capital. When you don’t have high yielding assets to work with (like most places in the West), then you have to hold thumbs that the stock market is going to make up the capital you hived off for living expenses. You can use the analogy of milking a cow (yield) versus cutting back your spring asparagus and hoping it will grow back next year (capital). 

A plan can differentiate between investments you’re going to need for retirement and others, and allocate your investments accordingly – by sector, asset class, region. Part of the plan might be to invest offshore temporarily – especially if it’s already there – and bring it back occasionally to top up retirement funding. My top tip is to be flexible and open to alternatives. Stop following and consuming negative fear-mongering content. Dogmatic opinions and knee-jerk reactions are almost guaranteed to hurt your wealth.

  • Johannesburg-based intermediary Dawn Ridler, MBA, BSc and CFP ® is founder of Kerenga.

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