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David:
It is Watts Involved on this Monday evening and it’s proudly brought to you by Global & Local Investment Advisors.
In the studio with me we’ve got Michael & Mauro, good evening gentleman.
Mauro:
Good evening David.
Michael:
Good evening, nice hot Monday evening and hopefully by Thursday we have lost of rain.
David:
It has been a little strange like that because it gets a bit cooler and then I think maybe it’s autumn and then “bang” it comes back at you again. Anyway, it’s a bit like I’m hoping the economy is going to do, come back at us again.
The show is brought to you by Global & Local Investment Advisors and we had such a great response last time, initially we were going to be doing half an hour twice a month and we were like “no, we can’t actually get everything across that we need in that time”, so going forward it’s going to be a solid hour for you guys.
We had so many questions last time, you got a lot of questions as well and we are going to be having a chat about a couple of those.
Should we start off with the first one? Should we jump right in?
Michael:
Go for it.
David:
Okay. So, the first question, which came through a couple of times, isn’t it risky to invest offshore? Because you talk about offshore investing and I know personally I think “Oh no, I don’t know what to do, I don’t know how to do it”. Talk to me about that?
Michael:
Risk is an interesting beast, number 1. Risk is – are you wanting a return in excess of interest in a bank account. Risk is – are you wanting access on your funds within a day, a year, 5 years.
But, in answer to that, there are many, many options, income funds, index funds, equity funds, property funds, European funds, there are a thousand and one options. The essence of it is to take a mix of options, some no risk, some moderate and some high and to have a total overall blend where your capital isn’t at risk and you have access on it.
Mauro:
Can I add something? Risk in terms of offshore investments also comes in two different formats and with that there’s opportunity to generate capital growth as well. So, if you are invested in a foreign currency, you have the opportunity to generate growth on the devaluating Rand, but that’s a risk as well because the Rand could appreciate.
David:
That’s probably not such a big risk really, let’s be honest.
Mauro:
Well, let’s see what happens, but that’s the first one. The second one is whatever you’re invested in, whichever fund, investment type, what have you. That has got an opportunity to grow and it’s got an opportunity not to grow. So, you are looking at two of the same, like a yin-yan symbol, so it’s one and the same, risk & opportunity.
We tend to believe, like you mentioned, that the currency will depreciate and the assets that you’re invested in offshore will appreciate. So, especially in the long run, you will have both those opportunities coming in, but in the short run, that’s where volatility comes in and that where the risk is greater.
David:
Alright, so it is Watts Involved this evening, proudly brought to you by Global & Local Investment Advisors. We got the guys in the studio, any questions, I believe all of our buts and pieces are working digitally tonight. So, if you’ve got any questions, you can SMS us on 41348, those SMSs are charged at R1.50, alternatively, WhatsApp your questions to 084 822 0938.
We going to go off script a little bit here if you don’t mind, because something’s come in. Somebody says, but hang on now, I’ve got my insurance broker and I’ve got my RA and my life policy etc. That’s not why you guys necessarily do, I mean I could use you, if I had my broker and I had my little life insurance and RA, whatever but I had some additional funds and whatever the case may be. I would then come to people like you, am I correct?
Michael:
So, your normal broker would enter you into a life policy, retirement annuity, endowment, which has a fixed term and is in Rands. A retirement annuity, you don’t have access on that until 55, most other products you only have access on it within 5 years. With us, we offer funds, a fund is a specific investment type where generally you have access on it within a week and that is offshore or local.
David:
Okay, so essentially it is an addendum to what I already have and it’s a way to ensure that my money does grow as well. From a personal experience, in the old days you used to have your RA and they would come there and they would say “okay you going to do this, you going to pay that and at the end of it going to get ‘eleventy billion rand’” and that’s the last you here from the guys. And when it comes to retirement age, very often you suddenly realise that the “eleventy billion rand”, number 1 – didn’t materialise and number 2 – it isn’t enough.
Michael:
If I can add onto that, I’ve found out that often a client asks “Can I have maths? What do I need at age 55/60/65?”. We do the maths, but in order to reach that number, he’s earning R25 000 per month and he has to invest R8000, it’s not going to work. It’s what can you afford? And then every year judge your return, measure it every year and then if you can, add onto it.
David:
And what I like about you guys, and I did some research, we were talking off air, because I happen to know one of your clients and I had a chat to one of your clients and they were saying to me that in fact you guys are exactly that, you’re advisors, somebody can just talk to you and you’re happy to talk to people.
I do that, I need to make sure that people on the show are who they say they are, and you came very highly recommended by the way.
Michael:
It’s about helping people grow their money but also giving them hope and giving them happiness, it isn’t only about selling stuff.
David:
Yes, I like it. Let’s move on now, because we’ve got a lot of questions.
Are you able to invest in multiple currencies in one investment portfolio?
Mauro:
Yes, you are. So, you can have multiple investments in different currencies, you can one investment in multiple currencies, it all depends on how you feel. If you had to ask us “Which offshore currency should I go into?”, we would typically say go to the US Dollar, but that might not be a currency that you “think in”, you might prefer Pounds, you might prefer Euros. Typically, we like to focus on the bigger hard currencies, Dollars, Pounds, Euros, sometimes Australian Dollars.
Why would we prefer to US Dollar? Well very simply, it is the de facto world currency, if you look at the amount of offshore investment funds available around the world, you talking about a great, great number of US Dollar based so that universe is greater for us to source funds from. If you’re looking for funds in Pounds or Euros, that universe is smaller. You’ve also got to think that the US Dollar is the most traded currency in the world, so you never going to find a position where you not going to be able to find a market for your US Dollars when you want to convert them back to Rands. You probably won’t find that with Euros or Pounds either, but the de facto world currency is Dollars, a lot of international trades are priced in Dollars, so it just is the easiest currency to work in.
David:
Okay, Michael one more quick thing and then we going to have some music and come back, but before we go?
Michael:
So, also under a currency, an American Dollar currency might enter into multiple other currencies so any adjustments in those, come through in the American Dollar. There are over 600 000 unit trusts in the world, of those, 90 plus percent are in Dollars.
David:
Watts Involved proudly brought to you by Global & Local Investment Advisors and we are chatting to Michael & Mauro, just going through some of your questions from last week.
We’re talking now about offshore, because that’s where we started the last time.
So, when you want to disinvest, get out of your offshore investment, must the funds get paid into your local South African bank account or can I ask for it to get paid somewhere else?
Michael:
Either. So, if you have an offshore fund with a company like Allan Gray, RMB and you end it, normally to access those funds it takes about 8 working days, you have to either enter into an offshore bank account in your own name in any country in the world. Alternatively, you can enter it back into SA into your own bank account and you have to within a month by law, have that currency changed back into Rands, so it allows you a chance to watch the rate. So, if the rate’s bad and you think “let me just wait a bit longer, maybe I can get more Rands for my Dollars, you have a month.
David:
Okay, good. So, if I do invest for example in an offshore living annuity, does my income then get paid into my South African bank account or the offshore bank account? I’m just thinking now, if I say to you guys “I want to put a bunch of money out there, do the offshore thing as you suggested, but I want the return or whatever to get paid into an account”
Mauro:
Okay, let’s start a the top, a living annuity is a post retirement product where you’re putting in capital that’s come from a retirement annuity or a pension fund, provident fund. So, you can invest the underlying capital offshore, which means any income from that gets paid locally. What happens is you actually land up splitting that underlying portfolio, you’ve got a portion in cash, in Rands that pays your income here and the balance is invested offshore. It’s usually about 85 / 90% that’s invested offshore, the 10% is used to generate the income from here and that’s kept in cash within the living annuity.
Michael:
If I can just add onto that, you spend your whole life working for a pension, when you retire and you want an income off it, you can have the bulk of that offshore earning in hard currency, so if the Rand falls you earn more but you have to have an income off it in Rands that’s the catch.
Mauro:
That’s why you split it, that’s why you have that little pocket of money in Rands, the income gets paid from there and then every so often you will rebalance and bring in a little bit more to add to that Rand account.
David:
Okay, because I’m thinking a lot of people are going “I’m now going to get paid out my pension but if I try and live on that in terms of what the South Africa currency, markets etc are doing at the moment, I’m going to run out of money, so would it make sense then to put some of it offshore?”
Michael:
Absolutely, if you have an offshore investment earning in Dollars an annual earning per year of, call it, 5% and the Rand falls by an equal amount per year, your return doubles.
David:
Okay, that makes sense.
Another question that came in is, how do Global & Local report their offshore investments? Is it reported in Rands or the currency that you’re invested in?
Mauro, are you going to get this one?
Mauro:
With most product providers you can choose, they’ll give it to you in either. I would say whilst you’re invested, think of looking at the earnings in the offshore currency, because that’s what it is. So, you’ve taken the Rand, you’ve converted into Dollars or whatever, it’s now invested in that currency, that’s the currency that matters because whatever the value is in Rands fluctuates every day, so rather look at it in the offshore currency because the Rand amount will only matter when you bring it back.
David:
I’ll tell you what, when you do this whole thing and there’s foreign currency involved, so a while ago I put a little bit of money into Bitcoin and it plummeted so I sulked and I haven’t looked at it and then since last year I’ve kind of been keeping an eye on it and it’s grown. But that can terrify you, if you sit and watch that every day, you’re going to go mad.
Michael:
I’ve spent 8 weeks doing an online course on that in 2018, everybody asked me about cryptocurrencies, and I had to learn and understand. Great returns, extremely high risk.
David:
I was about to say that’s not a low risk investment.
Michael:
If you invest, think of it as money you can afford to not have.
David:
Yeah. Well that’s why my little bit’s there and it’s incredibly complicated now in my life to try and get it out so it just stays there.
Mauro:
So what we also often say to clients is – cryptocurrencies are probably the way of the future but if you go back to 1998 / 2000, just before the dotcom crash, we knew the internet was the future, we knew that this thing was going to change the world, if you look back from now you’ll see how it has.
Before that, you’ve got to remember that we had all these strange companies coming to market, listing their shares and no-one understood how they were going to make money and what happened? Too many of those came to market, the market crashed and a lot of those companies that were listed before that crash are no longer there and we’ve got the companies that have come out of that crash, the “Alphabets” and the “Facebooks” of the world, companies with proper business plans and proper ways to generate income and profits.
So, you’ve got to think of cryptos in the same way, we know it’s fantastic, we understand the technology behind it but we don’t quite know what the implications of it are going to be.
David:
I think that’s the secret there, it’s the technology, it’s that blockchain technology but what is going to be done with it.
Another question just in, what happens when hyperinflation hits any currency? This can happen overnight like in Zimbabwe.
Michael:
It really depends on what currency you’re in, because right now all of the worlds advanced countries like America, England, France, etc, their inflation rates are really low, and the odds are that they aren’t going up for a while. But if we speak about emerging market countries like Venezuela, I think last year their inflation was over a million percent, so if you earned R1 million it’s now worth R1. So that’s all about spreading your risk and having currencies which if the world has a drama, the odds are that currency will survive.
David:
Another question that has come in but that is where you guys would come in, I give you my money in good faith but you the guys that are out there watching what’s happening, watching Global events etc.
Michael:
What works today is not going to work next year, so whatever investments you have you need to have an expert that constantly looks at the funds and adjusts them, because life happens.
David:
Okay somebody here says, alright it’s all good and well you are giving all the advice, but have you invested your own money into your funds.
Michael:
Can I answer that? My opening statement to everybody is, whatever we offer we’re in and we’re in for at least 5 years, so if there is pain it hits us as well. Otherwise, why would we offer advice?
Mauro:
Can I add to that? If you look at Global & Local, what we do when we come across and investment product, a unit trust etc that we’re interested in, we will put on analysts on it, they will analyse it top to bottom – Who is behind it? How long have they been in business etc. That analysis is then distributed amongst our investment committee, we come together quarterly, and we discuss these things. If it’s gone through the due diligence process and we’re really excited about it, it’s natural for us to just put our own money in it because then we know it, we know who’s behind it and we understand it. It actually happens, not by design but by default.
David:
Okay, once again gentlemen, this is why we’re doing an hour in future because we haven’t even got through half of these questions.
One pretty cool one that I thinks is important to answer is – If I’ve now got an offshore investment and I pass away, what happens to that money?
Michael:
Generally, it would have to be returned to South Africa in Rands, if it is a structured product, generally it is left to an individual and if that individual has an offshore bank account, it can be entered into that bank account.
David:
Okay, so I would necessarily need a foreign executor?
Michael:
Not necessarily, most products out of SA follow our law, you would have to have a local will.
David:
Gentlemen, we’re about to run out of time, but somebody just asked one last question – Hi Guys, if one has foreign currency, can one invest directly by oneself into and offshore investment account like an “Allan Gray” kind of thing?
Mauro:
Yes, you can. Most offshore product providers allow you to invest money coming from South Africa or money that you’ve got offshore, it’s got to be in a recognised bank account in your name and then you’ll fill out an application form and instruct your bank to transfer the money.
Michael:
But a vital thing, they aren’t allowed to offer advice and you’ll have to pick yourself.
David:
That’s what I was going to ask, then obviously, you would need to educate yourself a good deal before you do this because once you’ve done it there’s no real recourse.
Michael:
Yes, it’s all very well to invest but it’s equally important to know when to sell.
David:
Wow, okay last question, I’m stopping now – what requirements are needed legally for you to be able to trade on behalf of possible clients? I see so many people offering courses etc for you to learn how to trade internationally and make money.
Mauro:
Okay, so for us to offer advice to our clients we need to have a licence with the Financial Services Conduct Authority, to be able to trade on behalf of a client you need a category 2 licence, if you have a category 1 licence you can offer advice but you can’t enter into mandates, if you give me mandate it means I will invest your money and I will change whatever make up of that money, how we’ve invested that money without needing to contact you. Category 1 licence says that I will offer advice but typically the investment is yours.
The guys offering courses online, how to trade currencies and stocks, they not giving you advice they are telling you how to do it and typically it’s not that good idea to do it on your own unless you’ve been doing this for a long time.
David:
Well I mean for example, I’ve got a mate who trades currency, doing very well for himself and I was like “dude can I give you some money” and he was like “no absolutely not you can’t”. Purely because he doesn’t have any of that and he’s doing it for himself.
Gentleman thank you; the questions keep coming in somebody want to know how we get hold of these guys at Global & Local, quite easily, it’s info@globallocal.co.za. This has been Watts involved proudly brough to you by Global & Local Investment Advisors.
Michael, Mauro, thank you so much we’ll see you next month for a full hour, looking forward to it.