Investors living in emerging markets should be looking to diversify a significant portion of their wealth into developed markets to protect themselves from economic and political instability and to gain access to a far wider array of investments.
Although global markets and currencies are volatile right now, if you’re serious about your financial wellbeing, it’s important to consider taking a portion of your investment portfolio offshore. It goes back to the advice of not keeping all your eggs in one basket. There are risks associated with keeping all your wealth strategies within the confines of your borders, especially if there is instability and a sound diversification strategy can achieve all types of benefits in terms of risk management.
“A very good risk diversification tool for investors in First World countries is to hold at least 40% of their wealth outside of the country in which they live,” explains Chris Hassall, Carrick Area Manager. “We generally advise our African clients to adopt that approach to their investments and with offices in South Africa, Zimbabwe, Malawi and Mauritius, Carrick is well-positioned to assist its African clients with offshore investment advice.”
Benefits of offshore investing:
- You gain access to other industries and strong companies across the globe
- The diversification benefits help to optimise your portfolio and reduce risk
- Developed markets can offer more stable growth, while rapidly expanding emerging markets can offer lucrative growth prospects
- Although currencies across Africa can be unpredictable, in the long-term they are unlikely to strengthen considerably in relation to main trading partners
- Having an offshore investment can ease investors’ concerns about economic or political instability. The reassurance of a ‘safe haven’ also tends to increase the commitment of staying invested for the long term.
A volatile local exchange rate is often one of the main reasons investors are skittish to invest internationally. “In places like Nigeria, for example, we’re finding that people don’t think they have the option to diversify,” explains Hassall. “Nigeria relies on oil exports to drive US dollars into the country, but oil prices and sales have fallen drastically. The lack of US dollars, together with a depreciating Naira and stringent forex exchange controls being put into place by the central bank, means many investors believe they cannot or should not save internationally right now.”
But, says Hassall, now is the time to save assets and wealth in a secure environment if you have hard currency to invest. “Many people are simply not exposed to the options. Carrick Wealth is an African company and has a big footprint in Nigeria. We have been doing business there for a number of years and know the territory and understand the challenges being faced in the country. We are able to find solutions to diversify outside the borders.”
In Zimbabwe’s case, while not everybody has access to move funds offshore, history has shown us that long term financial planning outside of Zimbabwe is not an option but a must, says Andrew Moore, Managing Director: Carrick Wealth Zimbabwe. “Currency risk, political and economic instability in Zimbabwe has happened multiple times in recent decades and the sad truth is that the only way to truly protect your wealth as a Zimbabwean resident is to look outside of Zimbabwe’s borders.”
“Zimbabwe’s local currency is highly controlled and the disparity between official rates and black market rates grows ever larger. This reinforces the fact that investments abroad are the only way to truly safeguard and growth the value of your savings,” he adds.
With Africa accounting for only about 3% of global GDP, it’s too small a pool for any global citizen. “The investment opportunities that you have access to once your wealth planning has left your country cannot be ignored,” says Anthony Palmer, Group Commercial Director at Carrick. “You need to access the world’s markets.”
He reminds investors, however, to match assets with liabilities. “If you’re retired and need a certain amount a month to cover your expenses, you need to make sure you have enough assets sitting in your country of residence to generate that amount. It comes down to a conversation with your advisor as to how much and timing.”
Investment options range from shares, unit trusts and exchange-traded funds to managed portfolios, structured notes, offshore bank accounts and property. Offshore exposure should be driven by your own investment goals, sound investment principles and a long-term financial plan. This is where a trusted, experienced financial advisor comes in, who can offer safety in the providers and jurisdictions they use.