What is Offshore Investing and Why Consider It in Your Portfolio?

Due to the numerous benefits offshore investing provides, more Individuals and businesses are turning to this as a more flexible option over regular and local investing. More than half of the world’s assets and investments are held in international locations and many well-established companies, families, and governments have investments in offshore jurisdictions.

This article outlines the benefits of investing offshore and why I think you should consider it in your investment portfolio.

What exactly is offshore investing?

Offshore investing, also called international or global investing, refers to legally placing your money in assets in a location other than your home country. It follows the same core principles as local investing, but with more options and opportunities. For example, If an investor notices a business investment opportunity outside South Africa or their home country and wishes to capitalise on it, offshore investing is a legal means of seeing it through.

Why invest offshore?

Many investors choose offshore investing for a variety of different reasons. Some choose it for diversification because it can reduce their portfolio volatility while maintaining returns. Others choose offshore investing to save on tax or simply to safeguard their wealth from depreciating due to a staggard economy and market. Offshore investments also provide a high degree of choice and flexibility, along with privacy and confidentiality.

Choosing the Right Geographic Diversification

Geographic diversification is crucial to any offshore investment fund and strategy, but on its own, it isn’t enough to just focus on different jurisdictions. Yes, you need to be aware of where you are diversifying to and what each destination has to offer in terms of tax, currency, and stability, among other factors. But one of the mistakes I notice among new investors is that they make a lifestyle purchase, not an investment. For example, just because you are buying a property in an emerging market does not necessarily mean it’ll quickly appreciate. People will sometimes trick themselves into thinking they’re investing when they actually just bought a second home.

It’s important to have an independent financial advisor to help you navigate the offshore arena and guide you in distinguishing between a lifestyle purchase, and an investment that has the potential to increase your ROI and reduce your risk ratio.

Examples of Offshore Investments

Offshore Mutual Funds

Offshore Mutual Funds
Mutual funds are seen as one of the safest ways of investing because it provides the lowest risk. Mutual funds companies are popular because they get investment from multiple people, resulting in lowered risk among all the investors.

Real Estate Investments 

With the right research into emerging markets and areas, international real estate property can turn out to be an excellent investment and are another safe way for investors to make smart offshore investments. Some investors also look to leverage foreign real estate for permanent residency or even second citizenship options in the country where they decide to buy.

Precious Metals

Investing in precious metals is undoubtedly the most popular asset protection options for many investors. Examples include silver, gold, platinum, and diamonds. The value associated with these precious metals fluctuates over time, but their real value lies in holding them for decades or even generations. Investments in precious metals are usually passed down from parents to children. For example, one hundred years ago, an ounce of gold was US$20. Today, it is US$1,913. 

Another reason why precious metals are popular is due to the trading price as they fluctuate in nature which creates an opportunity for the investors to earn a high return for their invested amount.

Venture Capital

Venture Capital investments carry the highest amount of risk but have the potential to also make the highest return on investment. For example, by investing in a startup overseas an investor can hold the profit share in the company or can take fixed returns on his original investment amount.

Foreign Currencies

Many investors choose to diversify away from the volatile rand and hold a large portion of their financial assets in non-rand denominations. When choosing to do this, it’s also easier to make direct investments in your foreign currency of choice, in, say, government or corporate bonds, equities, funds, etc.

Offshore investments are not just limited to real estate or placing funds in an offshore bank. There are plenty of other offshore investment opportunities which I haven’t covered, such as:

• Offshore mutual funds
• Private equity funds
• Commodities
• Forex Trading
• Derivatives
• Hedging

Conclusion

Offshore investing provides a great opportunity for investors who want to protect and grow their wealth in a foreign market where the political and economical situation is more stable, with higher rates of returns, instead of their resident country market. It provides an opportunity for investors to diversify their portfolio and invest in a variety of securities and assets while maintaining their risks of returns.

If you want to establish an offshore investment account, or simply would like advice on your options for investing offshore, you can get in touch with me here.

I’m Giles Maynard. I provide individual investment and wealth management services for private clients and companies. I have been trusted by clients, large and small to manage, protect, and preserve their wealth. How can I help you with yours?