Know Your Money with Bronwyn Waner and Craig Finch
Know Your Money with Bronwyn Waner and Craig Finch
123. Beyond Currency Fears: Building a Resilient Investment Portfolio in South Africa
Worried about the South African Rand and wondering how to protect your wealth? This essential conversation tackles one of the most persistent questions in South African personal finance: how to effectively invest offshore when you have concerns about local currency stability.
We journey through the fascinating history of the Rand - from its days of strength in the 1960s when it traded at 80 cents to the dollar, to today's reality around 18 Rand to the dollar. Despite these dramatic shifts, we explore why a balanced approach remains crucial for most South Africans, with financial experts typically recommending about 40% offshore allocation for optimal diversification.
The episode breaks down two primary offshore investment pathways: asset swaps (where investments are made internationally but paid back in Rand) and physical transfers using your annual allowances. Every South African taxpayer can move R1 million offshore yearly without SARS approval, plus potentially an additional R10 million with proper tax clearance. For those with smaller amounts, we discuss investment products that allow as little as R50,000 to be globally diversified.
Beyond technical strategies, we examine deeper questions about confidence in South Africa's future and how that should shape investment decisions. Despite valid concerns, we highlight South Africa's economic strengths, including our globally trusted, freely tradable currency and the Reserve Bank's impressive track record of never defaulting on obligations.
Rather than making financial decisions from fear or following well-meaning but potentially misguided advice from friends, this episode emphasizes the importance of developing a comprehensive plan tailored to your specific circumstances and goals. Remember: every Rand needs a plan. Listen now to gain clarity on building a resilient investment portfolio that balances local commitments with global opportunities.
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Hello viewers. So today we have a question from one of our listeners, and he has asked us what is the best way to invest offshore if you have little faith in the Rand, craig, what is your opinion on the question, first of all, and then, that's a great question, bronwyn Warren.
Speaker 2:This question isn't a new one. It doesn't just spring in the 2025 year. This goes back I don't know since 1960 probably, but in those days, when we moved currency from pound to rand, the rand was actually stronger than the dollar. So my dad bought a car from Germany and he paid 80 cents than the dollar, sure. So my dad bought a car in from Germany and he paid 80 cents to the dollar. So the Rand was much stronger than the dollar then. And, of course, now it's gone right the way what we face today in 18 Rand scenario.
Speaker 2:So you're always going to have this discussion of what? But if you're living in South Africa, you have to have most of your assets in South Africa. And then you go and say, well, I own property here, so that's a big asset for most of us. And then you say, well, if I don't think that the RAND is going to do well going forward and it's going to be a disaster in the next 20, 30 years, my first question is why do you own property here? Because that's going to be the hardest thing to sell if you don't have confidence. So it's a double-edged sword a little bit. It's a bit of political confidence and then confidence in the economy. And I'll say this discussion has been going on for decades and I don't know it always seems to bounce back. South Africa, for me, is a very lucky country. I mean, jan Smuts said South Africa I'm trying to remember his exact words. He said it's a peculiar kind of place where things aren't as bad as they are but not as good as they can be.
Speaker 3:So Jan.
Speaker 2:Smuts said that in the 1940s. So now we're in 2025 and we all still feel the same way. So now we're in 2025 and we all still feel the same way. But having said that, if you were living anywhere in the world, your investments will not only be in America or in the UK or Australia. You would diversify your investments elsewhere, so you would have offshore money In Australia, you would have money in Europe and America and vice versa.
Speaker 2:So we've done these discussions. We had many discussions, fund us, guide us around this, and about 40% of our clients' money should be offshore. If you're super wealthy, you can have more offshore, but you've got to be careful of the currency fluctuations. So if you have a living annuity, which is a pension that provides you a monthly income, and you have the options of where to invest the money, if you had all that money offshore and the rent went from 19 to 15, you'd have a capital loss overnight, and that can happen in South Africa. Then suddenly your pension is dropped dramatically just on the currency. So it's best to diversify that and have about 40% invested internationally.
Speaker 3:So would you have those investments held in foreign currency or in assets like gold?
Speaker 2:Well, there's two ways you can do it. You can swap the, you can have an asset swap, what they call it.
Speaker 3:Okay.
Speaker 2:So let's say you're living in New York, that pension that you're earning and you choose the percentage between 2.5% and 17.5%, that kind of pension, Then you could say then it's an asset swap. It says that the investment companies invest in your money offshore, but it's paid back in rands, it's paid back here. It hasn't physically left the country. The other way is to physically leave it, physically leave the country.
Speaker 3:That first one sorry to bother, but that first one does that also. Then it's dependent upon the exchange rate. Yes, absolutely.
Speaker 2:Yeah, yeah. And the other one is that you're allowed every South African taxpayer is allowed one million rand a year discretionary allowance. In other words, you're allowed to send a million rand across to hard currency offshore, but it does include your purchases online. So if you're buying stuff online or you're traveling, that one million rand discretionary allowance is included in that.
Speaker 3:Oh, you're traveling as well. So hotels, flights, unless you buy. If you're buying the flights from a South African provider like SAA, does that count as part of it? No, so whatever you've spent in foreign currency, in foreign currency. So if you're buying flights from a foreign, yeah.
Speaker 2:Yeah, then you're allowed an additional 10 million through SARS.
Speaker 3:But you have to apply for that, you have to apply for it, get tax clearance.
Speaker 2:For that. Sars has got to approve it. The first million. You don't need SARS approval because SARS have given the banks, the life companies as well and the investment houses the license to deal with the first million.
Speaker 3:For the average man, Craig, that's a lot of money. No, exactly, so it's not exactly like it's a hindrance to how much you can put across you have to be wealthy, to want to put more than that across every year.
Speaker 2:But we have products that allow you to put smaller amounts offshore physically leave South Africa. 50,000 rand, for example, can go and be invested in a portfolio that's diversified across the globe. That could be expressed in pounds or in dollars. So, physically, where's my money? My money is physically out of South Africa. So if I'm in the UK, I just tell that provider to pay that money into my British bank account. So there are physical ways of getting money outside of South Africa quite legally and part of your financial plan it's got to be part of the plan, as Bronwyn and I know that so well.
Speaker 1:Yeah, I definitely think it does need to be a part of the plan and I think if you don't have faith in South Africa and you want to retire here, it doesn't mean that you should invest all your money offshore, because that's not going to help. It doesn't mean that you should invest all your money offshore, because that's not going to help. Even if you are trying to plan to immigrate. You've got to again, like Craig said, don't worry about where you're putting your money. First, sell your property while you can, while it is good. Then take that money and put it away.
Speaker 1:So our advice to anybody that is staying in South Africa is every single investment that we show our clients, bar like money market money, will have some form of offshore in the model portfolio. So just because it's not in hard currency offshore, you are still getting that return from the offshore markets without that currency fluctuation, which I think is good For me. You've got to have all your building blocks first, and then that final one is that offshore, really hard currency investing to help you when you travel, if ever you do want to move overseas, and also just looking at your overall retirement plan, because you don't want to have all your eggs in one basket, and South Africa is a small pinprick versus the rest of the world that you can invest in.
Speaker 2:We're less than half a percent of the world's by GDP. Yeah, exactly, so it's important to diversify. But maybe your children one day would want to go to Vasti in another country and you've got currency overseas that you could use for that. So the question is difficult, but we believe you diversify. You have to have some offshore money. But you can't say I have all my money offshore, because if the RAND goes from 18 to 15 and we've had this fluctuation, we can't say it won't happen. The RAND is very volatile, very but it's very tradable. So that's another very good, positive aspect of South Africa that we have a currency that is trusted by the world. It's a trusted currency. You can put your money here and you can get your money out. Some third world countries aren't, so trusted and we are trusted.
Speaker 3:I looked into that recently and I don't think in the history of the Reserve Bank they've ever defaulted. No, that's amazing. Which I mean for an African country, is pretty impressive.
Speaker 2:No, exactly. So that's what I'll say. So there's massive positive aspects of that. So it's important once again to look at your financial plan. Sit with your financial planner, see how much money you've got offshore. See when you send money directly offshore. I think that's the. It's not a fast. If you're not. As Bronwyn said, if you're not keen to be here, then don't be here. If you're here, then you've got to be part of the economy and add positively to the economy.
Speaker 1:And I think it's like what we say. You know, every ran needs to have a plan, so don't just put money offshore because you're scared of South Africa. Have the plan of why you're putting that.
Speaker 3:Because you're made to telling you to do that?
Speaker 2:Yeah, exactly that's the worst reason it is.
Speaker 3:I mean, how often do you guys get that?
Speaker 1:Well, that well, my friend just said we should do this. Yeah, all the news said, or this article said, yes, but what is your plan? Where? Where's your future? What are you doing? What are you planning for?
Speaker 2:it's all to the noise.
Speaker 3:I promise you, the noise has been here forever speaking of which, uh, uh, what was it the last round of um podcast we did? We talked about um going through the ups and downs of the markets and, obviously, since the tariff war started, quite the down. Hey, yeah what?
Speaker 2:the market went down, yes, but it's recovered. It's bounded back to the highest levels again. Is it at?
Speaker 3:the highest levels. Okay, that's what I found. Interesting is, obviously people will say it's chaos, 10% loss over whatever it was a week, because the the press love it, don't they?
Speaker 2:They love to go it's 10% down. They don't say it's got 30% up. When it goes up like that in a 15-month period, they don't like to say that. I promise you don't filter the noise.
Speaker 3:There's also a lot of opportunity when it goes down like that. Oh my word, Sure.
Speaker 2:Yeah great, yeah great awesome stuff. Thanks everybody. Thanks everybody. Have a great day bye. Thank you for listening. If you have enjoyed this podcast would like to subscribe, please visit our website, wwwgrowthfpcoza. Information we have provided in this podcast is our personal opinion. For more detailed information, please discuss your financial situation with a financial planner.