In the game of chess the most insignificant piece on the board is the pawn. The pawn has limited options for maneuverability only able to move in one direction and often sacrificed for the bigger game plan. As a South African investor I feel somewhat like a pawn in the game of international finance.
With our open economy and the fact that our market represents only 0.5% of the world markets we are in fact a pawn in the hands of developed markets and their leaders. The recent volatility of the exchange rate is a perfect example of our vulnerability to the moves of the “bigger players” and just like a pawn we have limited options wrt our maneuverability.
South Africa has truly been the rainbow nation for investors over the last decade in fact many South Africans may feel like they found the pot of gold. Over the last 10 years our property, bond and equity markets have out-performed the developed world and most South Africans are significantly better off in dollar terms than they were a few years ago.
The time is right to lock-in those dollar profits and reduce your overall exposure to local markets by diversifying offshore. The annual offshore investment limit is now R 5 mil combining the investment and travel allowance. Investors may also make use of asset swop funds to gain exposure to international markets and thus diversify their geographic, currency and market risk.
The optimal percentage offshore allocation will depend on your personal situation and is best discussed with a professional advisor. Most importantly the motivation for an offshore investment should be risk diversification and not the potential for higher returns.
Mcomm, CFP®, HdipTax
T. 021-851 3746
Don’t wait for “check-mate” to react, just like chess your personal finances should be managed in a strategic pro-active way.