How Much of Your Wealth Should Be Offshore?

Anyone who answers “how much of my wealth should be offshore” with a single confident number is selling you something. There is no universal percentage that fits everyone, because the right answer depends entirely on where you plan to spend the money, in what currency, and when. The honest answer to this question is a method, not a figure, and once you have worked through the method your own number tends to fall out on its own.

That is not a dodge. Two people with identical portfolios can have very different sensible offshore shares: one has a child likely to study in the UK, the other doesn’t. The number is downstream of the answers, not the other way round.

The real question is where you will spend the money

Money you will spend in South Africa wants to be held mostly in rand assets. Money you might spend abroad, whether your own retirement overseas, a property purchase elsewhere, or an inheritance left to children who have settled abroad, wants some exposure to that foreign currency instead.

This is usually called liability matching, and it is a far more useful lens than trying to guess where the rand is heading. You are not trying to predict a currency; you are lining up the currency of your future spending with the currency of the assets that will fund it. A retired couple living out their days in Cape Town on rand expenses has a very different profile from a couple planning to split their time between South Africa and the UK, even with identical total wealth.

You may already be more exposed to South Africa than you realise

Before a rand of new money is invested, most South African residents already carry a large concentration in one economy. A South African salary, a house in South Africa, and a retirement fund invested largely in South African assets are all bets on the same economy and, generally, the same currency. Investing offshore on top of that is partly a diversification decision, not a currency call.

This reframes the whole question. “Should I go offshore because the rand looks weak” is the wrong question. “How concentrated am I already, across my job, property and retirement savings, and does that make sense” is the right one, and it can point toward more offshore exposure even for someone with no view on the currency at all. That is exactly the point: it isn’t a currency bet.

Two different questions hiding inside one word

“How much should be offshore” is actually two separate questions, and conflating them causes confusion.

• Offshore exposure is what the money is invested in: rand-denominated funds holding foreign shares, bonds or property, priced and often taxed as South African investments, with underlying assets outside the country’s economy.
• Offshore custody is where the money physically sits: held with an institution abroad, in a foreign currency, outside the South African banking system.

You can have a great deal of offshore exposure with very little offshore custody, or the reverse. A rand-based global equity fund gives exposure without custody; money sent abroad and invested through a foreign platform gives both. Deciding “how much offshore” without first deciding which of these you mean is one of the most common ways this question goes sideways.

What actually bounds the answer

Several things constrain what is practically achievable, whatever a particular offshore share looks like in theory:

• Exchange control allowances. Moving money out of South Africa runs through specific annual allowances, with more paperwork above certain thresholds, which shapes how fast offshore custody can be built even when exposure through rand-denominated funds is unlimited.
• Prudential limits inside retirement funds. Retirement annuities and pension funds carry a regulatory cap on how much may be invested offshore, so a retirement annuity can only ever carry part of the total offshore ambition and the rest has to sit elsewhere.
• Tax reporting. Assets and income held offshore generally carry their own reporting obligations to SARS, separate from the investment decision itself and a matter for a tax adviser.

None of this tells you what your offshore share should be. It tells you the boundaries any answer has to fit within, and it’s one more reason a universal percentage was never going to survive contact with an actual person’s circumstances.

The answer changes over a lifetime

The right offshore share for someone still adding to their South African salary, property and retirement fund every month tends to differ from the right share for someone drawing down a fixed pot in retirement. Accumulation and drawdown are different problems: one builds diversification steadily over decades, the other matches what is actually being spent, year by year, to the currency it is spent in.

Life events move the answer too. A child emigrating changes where an inheritance might eventually be spent. A firm decision to retire in South Africa, or eventually to leave it, changes the future spending currency directly. None of this needs deciding once and left alone; it is worth revisiting as circumstances change, rather than as the rand moves.

The mistake to avoid

The most common mistake is choosing an offshore percentage based on a view of where the currency is heading: “the rand is going to keep weakening, so I want to be almost entirely offshore,” or its mirror image after a period of rand strength. Currency views are notoriously hard to act on consistently, and building a long-term structure around a short-term opinion tends to get reversed at exactly the wrong moment. Liability matching and concentration risk do not depend on anyone’s forecast being right.

Questions worth answering for yourself

• Where do you realistically expect to be living and spending in ten, twenty and thirty years?
• Do you have children with a real chance of settling, studying or working abroad?
• How exposed are you already to South Africa through your job, property and retirement fund, before any new investing decision?
• Are you talking about offshore exposure, offshore custody, or both?
• Is part of this decision actually a currency view dressed up as diversification?

Answering these honestly gets you most of the way to a sensible structure. Turning the answers into an actual portfolio, across the vehicles and allowances involved, is the part a adviser is there for, and it goes beyond what a general article can settle. The offshore investing page covers the underlying building blocks in more detail, and an introductory call is a reasonable place to start.

Frequently asked questions

How much of my wealth should be offshore?

There is no correct percentage, and anyone quoting one is generalising past your actual circumstances. The useful approach is to work out where you will spend your money and in which currency, then look at how concentrated you already are in the South African economy through your job, property and retirement fund. Your offshore share falls out of those two answers.

How much should I invest offshore each year?

This is a different question from the overall offshore share, and it depends on your annual exchange control allowance if you’re sending money abroad, versus investing in rand-denominated offshore funds, which face no such limit. It also has its own separate article, since the mechanics differ considerably from the “how much overall” question.

Should I decide my offshore percentage based on what the rand is likely to do?

Generally no. Basing a long-term structural decision on a currency view tends to produce decisions that get reversed at the worst possible moment, once the view turns out wrong or simply changes. The more durable approach matches future spending currency to asset currency and accounts for how concentrated your existing wealth already is in South Africa.

This article is for general information only and does not constitute financial, tax or investment advice. Exchange control allowances, retirement fund limits and tax reporting requirements referred to above change over time and depend on individual circumstances. Speak to a tax adviser about your own reporting position before acting.