“Get as much of your money offshore as possible.” For many years, that’s been the advice that South African financial advisors have given to their customers, and with good reason too. Not only does offshore exposure mean a more diversified portfolio of investments, but it’s also meant better returns, particularly over the last decade or so.
Take equities, for instance. Since 2010, the S&P 500 index has significantly outperformed the JSE Top 40. In fact, per an investment note by Moonstone, investing the equivalent of US$100 in 2010 would only have netted you US$126 today. By comparison, US$100 invested in the S&P 500 would be worth US$539 today, more than four times as much.
The fact that US-based equities have outperformed is largely due to the comparative strength of its economy and a more stable political situation. That’s also informed the outperformance of offshore assets in several other classes, including real estate. The one exception is South African bonds, which have offered high returns thanks to the country’s credit rating and economic challenges. Even then, interest rate fluctuations and currency volatility have impacted returns.
While both the JSE and the rand have strengthened in recent months, thanks to a more business-friendly Government of National Unity (GNU) and a 200-plus day break from load shedding, having offshore assets is still essential. Not only do such assets offer opportunities for diversification, but they also allow investors the opportunity to grow their wealth in countries with stronger currencies than South Africa’s.
And as Harry Scherzer, CEO of local fintech Future Forex, points out, that can be immensely beneficial.
“A decade ago, the rand was trading at just over R11 to the dollar,” he says. “For the past couple of weeks, it’s been floating around the R17.50 mark. While that’s a significant improvement on the levels the currencies were trading at a couple of weeks ago, it does show that the general trend has been towards a weakening of the rand.”
“Anyone who invested internationally when the currency was at that R11 mark hasn’t just benefited from the returns on offer,” he adds. “That means they’re significantly wealthier in rand terms than they would have been even if they’d identified well-performing local assets.”
As the Future Forex CEO points out, however, investors can improve their returns even further by ensuring that they work with the right international money transfer provider. According to Scherzer, investors should look for international money transfer providers that prioritise automation, transparency, and customer service, rather than turning to their banks.
“Far too many banks still have slow, manual processes when it comes to international money transfers,” says Scherzer. “That means that transactions can end up taking a lot longer than they should, meaning that investors might miss out on a period of relative rand strength when sending money over gets them more dollars, pounds, or euros to invest.”
“By working with an international money transfer provider that embraces automation, the entire process will be completed swiftly and seamlessly, making it easier to keep up with currency fluctuations,” he adds. “But it also makes the process much more pleasant for investors, meaning that they’re more likely to keep investing money offshore.”
The same, he points out, is true for customer service.
“If you’ve used your bank for an international money transfer and there’s an issue, I challenge you to see how quickly you can get them to resolve it,” says Scherzer. “Chances are, it’ll take a frustrating amount of time. Whether you try and resolve the issue on your own, using the bank’s website or app, or go straight to the contact centre, it’s still going to be hours or even days before you get anywhere.”
“By contrast, when you work with an international money transfer provider that prioritises expert-led customer service, you’ll have knowledgeable teams tackling your problems and helping you on the communication channel you’re most comfortable with,” he adds.
Perhaps the biggest issue with banks, Scherzer points out, is their lack of transparency, particularly when it comes to the fees they charge on international money transfers.
“Most people are only aware of the fees that a bank advertises,” he says. “But they may know nothing about a hidden fee called ‘the spread’ (which is the difference between the rate at which the bank buys a currency and the rate at which it sells it). Banks typically bake these significant charges into their processes, meaning that a transaction can end up costing much more than the customer realises.”
Scherzer notes that this is frustrating at the best of times but can have a serious impact on investors.
“The power of compound interest means that every rand invested today will grow exponentially down the line,” he says. “In other words, every rand and cent matters, and you don’t want your international money provider taking an unfair share, especially if you didn’t know about it beforehand.”
As Scherzer notes,having offshore investments is crucial for South Africans, even in times of economic optimism. What few may realise, however, is the role that international money transfers play in ensuring your investments work as hard as possible.
“Whatever your reasons for investing offshore, it’s imperative that you choose the right international money transfer provider before moving a cent abroad,” he concludes.
