Do you want to invest in stocks offshore? Here’s how to choose the right investment

Julie Brownlee, Fsp Invest, 30 Jul. 2014

Tags: investing, investing offshore, what to consider when investing offshore, return, tax, liquidity,

If you’re looking to expand your investment portfolio outside of South Africa, how do you know if you’re making the right investment?

There are so many things to consider.

Investing offshore is something worth considering. It’s a great way to lower your overall risk and add some diversification to your portfolio.

Read on to uncover three things to consider before making any offshore investment decisions…

Investing offshore consideration #1: Annual rates of return

The return you receive on an investment is the money you receive back for investing. And this also rewards you for the risk you take when you invest.

When you invest, there are usually two parts of return, the team of experts at The South African Investor explain:

  • Income: If you invested in shares, this would be any dividends you receive.
  • Capital: If you invested in shares, this would be the growth in a company’s share price from when you bought it. You only realise this capital gain when you sell the asset.

It makes investment sense to add income and capital returns together. Convert this to an annual rate.

If you’re looking at an overseas investment, have a look at its performance over the last few years. You want to see the prospect of decent returns before investing, otherwise it’s not worth taking on the extra risk.

Investing offshore consideration #2: Tax

When you decide to bring back any profits from overseas investments into South Africa, you’ll most likely pay tax on it. If it’s for long-term investments, this will most likely be capital gains tax.

You should adjust your expected returns for tax so you can weigh up the effect of this.

Investing offshore consideration #3: Liquidity

Whatever asset you invest in, liquidity is an important consideration. There’s no point investing in an asset and never being able to sell it to realise your gains.

So before you invest offshore, make sure you’re investing in liquid (easily sellable) assets. Of course, invest in something like property and you’d expect to wait a while until you find a buyer.

Liquidity is important to consider so you know how quickly you could cash in on that asset if you needed the cash.

So there you have it, how to choose the right investment if you want to invest in stocks offshore.

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