Investing Offshore just got easier

Allan Gray introduce Rand lump sum offshore investments

Allan Gray has recently launched a new offering where investors can deposit local currency into Allan Gray’s bank account and Allan Gray will facilitate the conversion into foreign currency.

Investors can now invest into a new offshore investment from R20, 000, whilst existing investors can add to their investments from as little as R5, 000.

Benefits of investing offshore:

South Africa represents less than 1% of the world economy. Investing offshore allows investors to spread their investment risk across different economies and regions.
Investing offshore provides access to industries and companies that may not be available in South Africa.
The Rand has decreased in value by 8.2% to the US Dollar over the past five years. We expect the Rand to continue to depreciate in the medium to long term.
Investing offshore offers diversification benefits, reduced emerging market and currency risk as well as maintaining hard currency spending power.

Orbis SICAV Global Balanced Fund

The Orbis SICAV Global Balanced Fund seeks to balance appreciation of capital, income generation and risk of loss with a diversified global portfolio of equity, fixed income and commodity-linked instruments. The fund is suitable for investors who are looking for capital appreciation without being fully exposed to equity markets.

Fund returns for the Orbis SICAV Global Balanced Fund (US Dollars):

Since Fund inception: 8.2%

5 year returns: 5.7%

3 year returns: 11.4%

This is a fantastic opportunity for investors to diversify their investment and access offshore investment opportunities. For more information please contact us at 0027 41 373 0601 or you can get in contact with us here

Investing: Tax-free investments

Tax-Free Investments

On the 1^st of March 2015, the National Treasury introduced tax-free investments to encourage individual investors to save. Tax-free investments are free from all tax, this means:

No tax on interest or other income
No dividends tax
No capital gains tax on withdrawal from your investment

National Treasury has placed limits on the amount that an investor can save in a tax-free investment. The total annual contribution in one tax year may not exceed R33, 000. The total lifetime contribution may not exceed R500, 000. If an investor has more than one tax-free plan, the maximum of R33, 000 per tax year applies to all their tax-free plans and not per plan.

It is important for investors not to exceed these limits as the South African Revenue Services will impose a 40% tax on any amount above the annual or lifetime allowance. If an investor contributed R40, 000 in a tax year the R7, 000 above the threshold would be taxed at 40%. (R7, 000 * 40% = R2, 800 tax would be payable to the South African Revenue Services.)

Investors may nominate one or more beneficiaries to receive the proceeds of the tax-free investment. This means in the event of the death of the investor, the investment will not incur executor’s fees and the investment will be paid to the beneficiaries.

Earning ‘interest on interest’

The mechanics of a tax-free investment work exactly the same as a unit trust investment. The investor is free to choose how much risk he or she wishes to assume in the investment. Unit trust funds that have a focus on providing investors with a growing income can be particularly beneficial in a tax-free investment. As the interest and dividends are earned they are reinvested into the tax-free investment. The compounding effect of this over time will provide the investor with meaningful long-term returns.

Let’s look at a practical example of how a tax-free investment could help supplement a tax-free income in retirement.

Annie is 20 years old and wants to invest in a tax-free investment. Annie realises her investment needs to increase ahead of inflation and invests in a fund that will deliver returns of 10% per annum over the long term.

After 15 years of contributing to her tax-free investment, Annie finally reaches her lifetime contribution limit of R500, 000. Her investment is now worth R1, 174, 095. Annie is too young to consider retiring and so chooses to leave the funds to continue to grow for another 20 years.

Annie is now 55 years old and would like to use her tax-free investment to supplement her income in retirement. Annie’s tax-free investment is now R7, 898, 724. Annie decides that she would like to withdraw 5% of the capital to provide her with an income. Annie will receive R400, 000 tax-free.

Isn’t it time that you started contributing to your tax-free investment? For more information or to start your tax-free investment contact us today!

Investing: Drawdowns, diversification and the impact on your investment

Drawdowns and how they impact your investment?

Drawdowns can present very significant and devastating risks to investor’s portfolios when considering the returns required to fully recover from a loss. The underlying fund in the investment will determine the potential drawdown that an investor may be faced with. It is important to remember that with higher returns comes higher risk and the potential for greater losses.

Let us look at the following example:

Investor A has an investment that declines in value by 20%. In order to for Investor A to get back to his starting point he would require the investment to rise by 25%.

Investor B is invested into a fund that decreases by 50%. Investor B now requires a return of 100% on his current investment value simply to recover from the drawdown he has suffered.

The below graph illustrates just how important it is to avoid substantial drawdowns in your investment.

Diversification

Diversification is an investment risk strategy which manages and blends different investments within a portfolio. Investment managers attempt to construct investment portfolios which are made up of equities, bonds, property and cash instruments to mitigate against the risk of potential drawdowns in a portfolio.

Diversification offers an additional layer of protection as not all assets react the same in similar market conditions. Over the past few years there has been heightened volatility in the stock market which should give investors cause to assess how are their investment portfolios positioned and how they can diversify their portfolio to mitigate against any potential drawdowns.

Investors should consider the amount of risk they are willing to take in their investment and what the impact would be to their future savings goals or plans if the investment were to suffer from a drawdown. It is important to remember that a drawdown does not necessarily imply that there is a loss. Markets go up and down and investors would only realise a loss should they disinvest from the fund. This being said it is very important for investors to try to avoid as much as possible large drawdowns so as to maximise their long term investment returns.

For more information on how to diversify your investments or to find out more about drawdowns, diversification and the impact this can have on the outcome of your investments please contact us to discuss your portfolio.