Investors often invest money offshore for financial growth while utilising their South African investments to satisfy ongoing needs. Where offshore investments are concerned, the investor needs to ascertain whether to invest directly or via an indirect vehicle.
Converting Rands to a foreign currency for investing abroad is known as direct investing. Investors who have chosen this method maintain an offshore bank account and utilise money transfers to their investment vehicle of choice. This is primarily done to have money available in certain jurisdictions and as safety against local political instability.
Indirect investments require mechanisms for transferring funds abroad, formally known as asset swaps. In essence, this is classified as the offshore allowance of an investment manager.
Local investors are often preoccupied with short-term fluctuations in the Rand and the planned conversion rate. As a result, they forget to consider that as the Rand strengthens, so do the global markets. The Rand seldom strengthens while global markets are down, which is why investors should not wait for massive Rand improvements before investing. Instead, a better action plan is to phase in investments over a specific time frame to account for currency fluctuations.
While the South African investment climate is somewhat restricted, offshore investing can become challenging due to the many investment choices. To determine which assets to invest abroad, investment managers must first conduct an investor risk and needs analysis.
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