What makes offshore investing powerful?

Ever wondered what the difference is between international, global and offshore investing? None at all - they're interchangeable terms! But what do they entail?

What is global investing?

Global investing refers to placing your money in assets in a jurisdiction other than your country of residence. It follows the same basic principles as ordinary investing, but with more options and opportunity. In practice, it refers to a wide range of investment strategies that seek to capitalise on the many investment opportunities that lie outside the country in which you live.

Okay, so investing in general is a smart thing to do with your money. But for an ordinary citizen, what makes international exposure worthwhile?

It all starts with diversification

There is only one 'free lunch' when it comes to investing - and that's diversification. This saying is often quoted because experts all know that diversifying is one of the most important things you can do to protect your wealth.

Diversification is a cornerstone of long-term investment strategy because it ensures that you are not putting all your eggs in one basket.

It's important to diversify your investments across different asset classes, such as equities (shares), bonds, property and cash. Some investors also consider infrastructure and other alternative investments, like private equity, to have investments that are not correlated to the stock and bond markets for longer-term diversification. The more asset classes you invest in ensures that if one of them performs poorly, the value of your other investments can make up for this.

The exponential power of compound interest

There are many dynamics at play 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, natural disasters, 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 achieve a balanced portfolio of assets that perform differently in response to differing conditions or events. A properly diversified investment portfolio is far less at risk of poor performance or irreversible capital loss that may result from a myriad of factors that affect specific assets or asset classes.

By smoothing out your returns and minimising your risk of losses from these events, diversification helps ensure that the magic of compounding can continue relatively uninterrupted.

And that's the reason to invest globally

Investing globally is powerful because it can help you better diversify your portfolio across more assets, sectors, geographical markets, and currencies - as well as expose it to a variety of exciting investment opportunities that you wouldn't have access to in your own country.

For instance, investing only in the South African stock market gives you exposure to about 300 companies or 1% of the global market. Conversely, diversifying to the New York Stock Exchange alone, gives you access to over 2,400 companies, and sectors that are not available in South Africa.

Some people believe that global investing is a complex process or one reserved only for the rich and well-connected. But this is not the case - the world of global investing has never been more accessible to citizens seeking to spread their risk. There are many options available to those seeking some offshore exposure, depending on your specific circumstances, needs and goals.

This article is not financial advice. Please consult with a financial adviser for financial advice.

• Global investing follows the same basic principles as ordinary investing, but with more options and opportunity.
• Diversification refers to spreading your risk by not putting all your eggs in one basket.
• A properly diversified investment portfolio is far less at risk of poor performance or irreversible capital loss.
• Diversification helps compounding to continue relatively uninterrupted.
• Investing offshore can help you diversify your portfolio across different assets, sectors, geographical markets, and currencies.