Think diversity think offshore

January 20, 2009
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, NAIROBI, Kenya, Jan 21 – The global financial crisis continues to take its toll on the world’s largest economies with the aftershocks being felt by many of the smaller economies around the world. The last two years in particular have been woeful for investors who have lost more than half the value of their investments. What is almost as distressing is that these investors do not know what other investment options are available to them.

Compared to most investment options available to investors, those with huge interests in the financial sector and particularly the stock market have borne the brunt of the global economic downturn. The stock markets have in the recent past been looked at by many investors as the most viable option with virtually guaranteed short-term returns. No not anymore, investor confidence couldn’t be lower than it is at the moment with some poorly informed or ill advised investors even deciding to count their losses and sell their stocks after giving up hope on the growth potential of their share prices. Many would-be investors have even shunned the stock market completely and are looking for other investment options.

One option is investing offshore. But what exactly is it and what are its benefits?
Simply put, ‘offshore investment’ refers to an investment strategy that involves taking advantage of the benefits offered in a location other than one’s country of residence. Most offshore investments take place in Bahamas, the Cayman Islands, Guernsey and the Isle of Man.

Offshore investments offer several advantages making it an option worth considering. To begin with is the tax benefit. It is true to say that most people would rather not pay taxes if given the option. This means that they would wish their countries were tax havens. The tax incentives are usually designed to enhance or promote investment. Returns on offshore investments are generally tax free in this country and the country where most offshore investments are made.

Offshore investment centers give investors the additional benefit of confidentiality. This is supported by the legislation in those centers where the laws have established strict banking and corporate confidentiality. Investors therefore do not have to worry about the service provider disclosing their identities or details of their investments.

An investor can have a truly diversified portfolio by investing offshore. This added flexibility means greater access to international markets, different asset classes and international currencies. Diversity in terms of asset classes means that one can invest in sectors such as biotechnology, medical research, alternative energy and, basically, sectors unavailable in the investor’s home country.

Back to the issue of stocks, investing offshore involves investment in funds. Funds are pooled investment vehicles, whereby a professional fund manager invests the monies paid into the fund on the investors’ behalf. Investors with preferences in financial and stock markets can therefore invest in funds whose holdings are listed in major stock exchanges around the world in global stock markets such as the London, New York, Frankfurt and Tokyo amongst other stock exchanges.

These are investors who clearly understand the stock markets and have stayed through the peaks and troughs looking straight at the ultimate goal which is higher returns.

The lesson to learn is that the stock market has almost always out-performed other investment tools. Its turbulence should be no reason to shun it altogether or to pull out at a loss. On the contrary, the time to invest is now when stock prices are rock bottom. This is the time when well-versed investors are looking for stock bargains.

Great investors are taught to listen to the market. Each tick of the tape has something to say about expectations for growth, inflation, policy changes and looming recessions. The stock market is way too big for any one person to manipulate, let alone touch directly.

Instead, millions of us provide input with our buying and selling decisions. These are investors who take more time than is necessary to make investment decisions and tend to take greater notice of the negatives and ignore the positives. This is the same for the stock markets which in most cases can be misleading and result in loss of opportunity.

A word of advice when investing offshore, however, is to always good to choose a reputable investment firm. Consult widely with people with experience in offshore investing and reputable investment advisors. Although the advice might come at a cost, the advice is invaluable and the gains from offshore investing eventually outweigh these costs.

Diversification is one of the greatest investment lessons and could be the difference between a great investment and a poor one. We all have a degree of patriotism that inclines us to invest in our country but at times we ought to look beyond this as better investment options lay elsewhere, offshore to be specific.

(Renaldo D’souza is the Marketing and PR Coordinator at Winton Investment Services Ltd, an Offshore Investment Advisory Company based in Nairobi)

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