Albert Coetzee, Head of the Global Investment Platform at Ninety One, sets out some key considerations when building an offshore nest egg, and warns of the unintended tax and estate planning consequences of an offshore bank account.
Holding cash in a foreign bank account is often perceived as an easy way to gain offshore exposure. If an investor has, however, taken the trouble to convert rands into, say, dollars or pounds to build up an offshore nest egg, they should put their money to work. The reality is that an investor's foreign currency holdings won't grow much in a foreign bank account as they'll be earning little to no interest income. While the rand tends to depreciate over time against major developed market currencies, they could also find themselves on the wrong side of currency moves, and with significantly increased volatility.
Even conservative investors who have a medium- to long-term horizon should consider taking on some investment risk to earn a positive real (above inflation) return on their offshore assets. Besides having lazy money that has little opportunity to grow, a South African resident may not realise the unintended tax and estate planning consequences of having an offshore bank account....