Getting off the grid financially

BY now most people know what it means to be “off the grid” in terms of water and electricity.

And over the past ten to fifteen years countless households have installed boreholes and /or solar panels to make their lives less dependent on the vagaries of Eskom and various water boards across the country.

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The import of solar panels in particular has risen sharply over the past few years as households and businesses scramble to break the stranglehold of a lack of regular and predictable electricity supply by Eskom. Some businesses have been forced to install generators and solar panels in order to survive.

I myself have taken the plunge, broke open the piggy bank and now have a borehole AND solar panels. Welcome to the New South Africa!

But what about your money and investments?

Can you still live in South Africa and be “off the grid” as far as your money and investments are concerned?

The answer is YES, and it is easier than most people realise. The only problem is that such a move will not be in the interest of various local vested interests, notably the banks and asset management companies, and they will scream blue murder when they read this advice.

They will put up all kinds of arguments against such a move, but many proud and loyal tax-paying South Africans are almost or even totally “off the grid” as far as their investments are concerned.

They live, work and pay their taxes here but they don’t have any local assets—house and/ or portfolio investment. They rent property and have invested their money in asset swaps or took out money via the legal mechanisms open to them.

Substantial growth offshore

Their net wealth has grown substantially over the past ten years and more when compared to the local “bittereinders” who saw offshore investments as somehow being disloyal or unpatriotic. Which is rubbish, off course.

We have long ago moved away from the notion that we must buy locally, drive a local car or use a local cell phone or fly the national carrier. We live in a globally integrated world as far as our daily products and services are concerned.

So why not your personal investments, especially when the economic policies of the ruling ANC is having a major detrimental effect on many parts of the investment spectrum?

The two notable areas where the ANC’s policy mismanagement and corruption are most acutely felt are property—both residential and commercial—and SA-focused listed companies on the JSE.

The JSE itself is feeling the effect of the global withdrawal of capital from SA with the number of listings down from around 800 listed companies at its peak to less than 300 listed companies right now.

The investment returns of the JSE, when compared to what has been available on global markets for over 15 years now, has been abysmal, barely beating inflation and in some case returning less money to investors when inflation and costs are taken into account.

I don’t think this will change quite soon, despite the often claims from SA’s fund managers that “SA is cheap and undervalued” and now is the time to buy.

This refrain has been repeated many times over the past ten years or so, but the much-promised upturn has not yet materialized. Many global fund managers view the SA equity market as being a classic value trap, in that while the shares are cheap, they are cheap for reasons not yet apparent and therefore needed to be avoided.

This has been evident in the massive outflow of capital from our bond and equity markets since 2018, coinciding with the rapid decline of the currency, declining from R12/USD to levels around R19/USD.

R1M Single Discretionary Allowance (SDA)

The government allows each taxpayer over the age of 18 to remit R1m offshore annually to anywhere in the world with no questions asked. This has become probably the most popular way to move up to R1m offshore for most South Africans with spare cash.

There are many forex dealers and banks who do this, but it only makes sense to buy dollars if the money is likely to be invested offshore. Investments can be done on a wide range of investment platforms (Momentum Wealth International, Swissquote and Ninety One).

A portfolio of a number of global equity funds by Brenthurst Wealth would have returned more than 10% per annum over the last 10 to 15 years.

Off the grid and not affected by local conditions.

R10m authorised international transfer

The second way to go “off the grid” is to apply for tax clearance to move R10m or more per calendar year for the well-to-do. The requirements are a bit more onerous but once approval has been obtained this money can be invested anywhere in the world.

Note that this money remains part of your global asset base and all taxes need to be paid thereon and it remains part of your estate.

It’s worth noting that this allowance has been pegged at R10m since 1 April 2015, which means that due to the decline in the ZAR/USD exchange rate, the dollar value of the R10m has declined from $820 000 in 2015 to around $530 000 today.

But what about investors who don’t have such large amounts to remit offshore?

A good place to start is for them to look at their current investments, either shares or unit trusts, or even retirement annuity funds and preservation funds.

Current portfolios can and should be transferred into offshore shares and asset swaps. While this might trigger some Capital Gains Tax (CGT) it is worth it, in my opinion, if one looks at the difference in historical returns over the past 15 years of local versus offshore.

Over 55?

I don’t know how much money is invested in retirement annuities (RA’s) and preservation funds by investors older than 55, but the number must run into the hundreds of billions in my view.

People with money into one or more of these often non-performing portfolios need to strongly consider cashing out of these funds, withdraw the tax-free portion (to take offshore) and reinvest the remaining capital in a living annuity with a 100% offshore portfolio.

I have been recommending this route for many years—despite the howls of objection from large financial institutions—but the outcomes have been very good for investors. My offshore living annuity has been growing at around 19% per annum since I made the move, compared to the 3-4% I was getting on my RAs previously.

This is a major source of capital which can be moved “off the grid” by thousands of investors. The end result: you’ve got some cash offshore and the balance is in an offshore asset swap fund of your choice.

Property:

Getting off the grid 100% means selling whatever properties you have in SA. Property has been a poor investment over the past 15 years, both residential and listed commercial property.

Property, barring the Western Cape, returns have not beaten inflation, as a result of the collapse of municipal services even though rates and taxes have soared by double the inflation rate.

Add to the mix crime, emigration and load-shedding, and you have seen a previously well-performing asset class show no real return to investors for 15 years.

Renting, on the other hand, has become much more attractive as rentals are generally very affordable due to the glut of speculative homes on the market, a legacy from a residential property boom long forgotten.

Conclusion

I think “getting off the grid” financially is set to become a major theme for South Africans who do not want to emigrate or cannot afford to. It’s actually easier than most people realise, and I have assisted countless investors in doing just that.

They live and play in South Africa, pay their taxes here and shout for the ‘Bokke’ but their wealth is growing outside of SA, protected from the mismanagement of the ruling ANC.

* Magnus Heystek is a co-founder, director and investment strategist of Brenthurst Wealth.