Global investing offers South Africans unique and compelling benefits – the most fundamental of which is spreading your overall investment risk, says Head of Research and Development at Discovery Invest, Craig Sher. The company recently launched an enhanced global investment solution that uses shared value to create the world’s first exchange rate enhancer, and offers investment choices in association with world leaders in asset management, BlackRock and Goldman Sachs Asset Management. Here, Sher explains how diversification helps to protect your wealth, and how access to global opportunities can grow it more.
Global investing is a hot topic at the moment. Investing globally can come with a host of complex considerations – so what makes international exposure worthwhile – and is it a route more citizens should look into?
Discovery Invest’s Head of Research and Development, Craig Sher, believes it is. “Gaining offshore exposure is an excellent idea for medium- to long-term investors. Almost everything we buy is impacted in some way by the global economy. It’s estimated that up to 64% of household expenditure is impacted by currency movements – so portfolios need diversification to cater for this,” he says.
What is offshore diversification and why does it matter?
Diversification is a cornerstone of long-term investment strategy, and essentially refers to spreading your risk. This is important because there are many factors that can affect individual assets or classes of assets – from global pandemics to societal and cultural trends, downgrades in a country’s investment status, property or oil prices, import and export regulations, the rise or collapse of a multinational, and innovations or automation within a specific industry, to name a few.
Because assets all perform differently under changing conditions or events, the goal is to balance your overall portfolio so you’re not adversely affected by big changes. Global investing offers compelling benefits.
Compelling reasons to invest globally
The first advantage of global investing is geographical diversification. The JSE offers investors a degree of international exposure because many locally listed companies are multinationals. However, this is limited to the specific geographic regions these companies operate in.
Secondly, global investing gives you access to new opportunities in sectors that perform strongly, but are not readily available on the local market. Technology, for example, makes up 20% of the S&P 500, and utilities have outperformed the S&P 500 by 10% over the year. Auto manufacturer Tesla was up 170% over one year, and industries like renewable energy and healthcare are also well-primed for growth. “It’s worth noting that the JSE accounts for less than 1% of the global equity market, so a significant majority of investment potential lies beyond our borders,” says Sher.
Keeping ahead of the currency curve
Finally, there’s currency diversification. Having investments in hard currencies like US dollars, British pounds or euros can help even out the volatility of the rand, and a combination of assets in rands and other currencies will make for a more balanced portfolio as overall losses and gains average out.
“A great way to enter the global market is to take advantage of Discovery Invest’s world-first exchange-rate enhancer,” says Sher. “Our enhanced Discovery Global Endowment lets medium- to long-term investors buy in at much lower than the prevailing exchange rate on qualifying investment choices. This provides, by far, the best effective currency conversion for your money, no matter when you decide to start a global investment.”
And starting is something all investors should consider, Sher concludes. “A properly diversified investment portfolio is far less at risk of poor performance or irreversible capital loss. It’s also well positioned to gain from economic recovery around the globe. For conscientious citizens, this is what makes international exposure worth their while.”
This article first appeared on News24.
Discovery Life International, the Guernsey branch of Discovery Life Limited (South Africa), licensed by the Guernsey Financial Services Commission under the Insurance Business (Bailiwick of Guernsey) Law 2002, to carry on long-term insurance business. Discovery Life Limited is a registered long term insurer and authorised financial services provider. Registration number 1966/003901/06. Discovery Life Investment Services Pty (Ltd): Registration number 2007/005969/07, is an authorised financial services provider. The views and opinions expressed in this article are for information purposes only and should not be seen as advice as defined in the Financial Advisory and Intermediary Services Act. Discovery shall not be liable for any actions taken by any person based on the correctness of this information. For full details on the products, benefits and any conditions, please refer to the relevant fact file. For tailored financial advice, please contact your financial adviser.