My last article highlighted six main factors that affect the strength of the rand. It’s been really well read and seems to be quite a frequently asked question. Further effects of the exchange rate fluctuations are felt in offshore investments.
Today I’d like to take a look at the considerations that a change in currency makes on offshore investment portfolio considerations.
In the same article from Discovery’s website, they looked at three investment portfolio scenarios that would be directly affected by a stronger or weaker rand.
If you are planning to invest offshore, you ideally want to exchange your money when the rand is strong because it means that you can purchase more units in a fund offshore. However, it’s important to remember that you cannot time currencies. Market timing and currency timing is never recommended for investors. You can, however, use rand strength as an indicator if you are already considering an offshore investment.
If you are investing offshore but have living expenses in South Africa or plan to retire in South Africa (i.e. you ultimately want to bring your investment back to South Africa or you want to live off the proceeds in South Africa), then a weaker rand could be favourable because it means that you get more when you convert your investment returns from the foreign currency into rand.
If you are investing offshore to eventually retire offshore, or to use the proceeds from your investment in the foreign country (for example, sending your child to University overseas), then the exchange rate has no effect on your investment, other than perhaps adding to your offshore investment when the rand is strong. More of a concern will be the real returns you earn from your offshore investment and whether it keeps pace with the level of inflation in that market.
I believe in investing for the long term to achieve success and optimal returns on your investments. There are a range of local and international funds that are tailored to meet your needs as an investor, whether you are aiming to invest in South Africa or want access to international markets.