In the mid-90s, a lot of money was driven offshore by political fear. That trend accelerated in 2001/2 with the currency’s fall to R13,50/dollar. This offshore money was really a bet on the rand. That phase ended abruptly in 2002 when the currency recovered strongly and global markets crashed. Many investors who went offshore in 2001 have not yet recovered their capital. Even today, enthusiasm for offshore investment tends to mirror rand weakness. The hard facts contradict that view: this year the rand is the world’s second-best performing currency.
Local Beats Offshore Hands Down
Over the past 10 years the JSE’s annualised return of 13,8% has beaten the best performing bourse among developed countries: Canada’s 6,9% (measured in US dollars). The Morgan Stanley World Index, the US and UK exchanges all performed worse.
Logic dictates that the best place to have invested has therefore not been offshore at all. But that’s not the full story: the past decade was preceded by a 20-year period, from 1980 through 1999, where the reverse was true and offshore equities significantly outperformed local equities.
Pieter Koekemoer, head of personal investments at Coronation, says: “Recent local market performance benefited from a reasonably benign backdrop marked by higher than average growth and low and relatively stable inflation. This was underpinned by the supportive effect of policy certainty and political stability.
A further factor that contributed to local outperformance was an attractive initial valuation level at the start of the decade.”Gavin Came, CEO of Sasfin Wealth, says this conflicting picture makes offshore investing a hard sell based purely on performance.
The correct motive for investing offshore therefore has to be diversification. Don’t see offshore investing as a currency-based decision, but rather as an opportunity to access asset classes and markets that are simply not available in the largely resource-weighted JSE.
“No-one knows where markets will go in future, and it is especially difficult to predict currency moves. Not only does a currency fluctuate, but the fluctuations of other currencies magnify those moves,” says Came.
How Much to Invest Offshore
Opinions differ hugely as to how much of your total portfolio should be invested offshore: many say 20% to 35%, others as much as 50%.
Armien Tyer, Sanlam Investment Management (SIM) MD favours offshore investments at the moment. Offshore equities have gained about 20% since March this year compared to the JSE’s 40%.
“South African equities remain fair to cheap, but we tend to prefer offshore equities over onshore at the moment, as they are cheaper,” says Tyer.
Three Ways to Invest Offshore
There are three ways to be invested offshore, says Came. In fact, many people are already invested offshore, often without being aware of it through Pension Funds, Retirement Annuities and Endowments. These, and traditional unit trusts, are often permitted by their rules to hold a certain proportion of their capital in offshore investments – no more than 15% or 20%.
Secondly, there are at least 26 global unit trusts available domestically that South Africans can buy using local currency. These are particularly easy to access, with minimum investments of about R5 000 or R500 a month by debit order.
These minimums are broadly the same as ordinary domestic unit trusts, says Came, although the ongoing fees tend to be higher to compensate for the extra administration by the fund manager. It is far easier to go this route than the third option of taking one’s R2 million foreign allowance offshore. This latter involves getting a tax clearance certificate and foreign exchange clearance from the bank.
But There Are Risks
Came warns of the risks associated with taking R2 million offshore. He advises against leaving the R2 million in a bank account, except to park it temporarily.
“Right now many developed countries with virtually zero interest rates have fairly high costs of maintaining a bank account and there is the currency risk – so you may end up losing money in an apparently safe investment.”
There are said to be more than 35 000 offshore collective investment schemes making selection almost impossible. Many of these have different rules to our funds.
For example, some have a 30-day settlement period compared to the normal one-day in South Africa, while many invest in asset classes such as hedge funds that are not usual here.
Note that if you lose your R2 million capital, you don’t get another allowance. “It’s usual for investors to choose a more conservative portfolio than they might do domestically, with the emphasis on capital preservation,” says Came.
Balancing Business And Investment Risks
It is vital that entrepreneurs develop additional revenue streams and create wealth outside of their business to ensure their financial security. Sheldon Friedericksen unpacks the benefits of including Fedgroup’s Secured Investment offering in a diversified portfolio.
Entrepreneurs tend to have a natural affinity for risk-taking. While carefully calculated, they bet big on their businesses, often going all-in when investing financial resources to start and grow their companies.
“Given this commitment, many entrepreneurs view their business as their ultimate retirement plan. This can be a mistake, because it places all their proverbial financial eggs in one basket,” explains Sheldon Friedericksen, Chief Financial Officer at Fedgroup.
As an entrepreneur, it’s important that you consider how a diversified investment portfolio that spreads risk can offer greater financial security, while still delivering robust returns.
“Paradoxically, while most successful entrepreneurs excel at diversification – they often pursue multiple opportunities, or pivot their business to exploit new gaps in the market – their investment portfolios seldom follow suit,” continues Friedericksen.
Exposed to volatility
This inherent appetite for risk means entrepreneurs often also employ a different approach to investing. “Allocations tend to reflect this risk profile, with portfolios heavily skewed towards high risk, high return assets such as equities.”
However, entrepreneurs need to carefully consider their asset allocations, taking into account their business in relation to their other investments. “As the sole or majority shareholder in a business, an entrepreneur already has massive exposure to equity risk, whether the company is listed or not,” says Friedericksen.
It’s also important to insulate investment portfolios from the potential impact of stock market corrections. The recent slump in the value of shares in companies that were previously considered mainstays in the portfolios of astute investors and leading fund managers has highlighted the variability in risk inherent in a concentrated equity investment approach.
“Since the start of 2018 a range of blue-chip JSE-listed companies have shed significant value as equities shrugged off positive market sentiment and reacted to weak economic fundamentals and, in certain instances, corporate governance irregularities,” says Friedericksen.
In the face of these developments, he believes that entrepreneurs should ask if they can solely rely on stock investments, especially when the bottom drops out of heavily-weighted shares like Steinhoff?
“While investing in equities has long been considered one of the best ways to achieve above-average returns, in the context of an entrepreneur’s risk profile there is always a need to include lower-risk, secure investments in your portfolio to ensure a degree of security and certainty.”
Your capital secured
A suitable option is Fedgroup’s Secured Investment participation (part) bond offering, which combines fixed, high returns with capital security. “We created our Secured Investment product to help investors earn a higher level of income than that offered by money market funds, while protecting their capital value.”
Part bonds are a low-risk, high-yield fixed deposit investment fund backed by first mortgage bonds on a physical properties.
This type of secured investment offers predictability with a fixed, guaranteed interest rate for the full term of the investment, allowing for accurate calculations and projections on growth.
“It is also a type of collective investment, which is governed by the same strict regulations as unit trusts and is regulated by the Financial Sector Conduct Authority (formerly the FSB). This means invested capital is secure and protected by law.”
Income or growth
Entrepreneurs can choose to invest for income, as interest earned at the nominal rate of 8.75% p.a. can be paid out monthly.
“Alternatively, investors can choose to invest for growth. By reinvesting the income, investors benefit from the power of compound interest, earning an effective rate of 10.9% p.a. over the five-year investment period,” continues Friedericksen. Investors also have the flexibility to switch from the growth option to the income option without attracting penalties.
What’s more, Fedgroup charges no fees on the investment amount, or on the interest earned, so returns aren’t eroded. “Our income is earned from the properties we finance and the interest income generated.”
Since launching its Secured Investment offering in 1990, Fedgroup has experienced significant inflows from both institutional and private investors, particularly for lump-sum cash investments. “We are currently managing over R2 billion within our Secured Investment portfolio,” confirms Friedericksen.
“Investing in assets that are counter cyclical to the industry within which entrepreneurs operate, and including more conservative, stable investments like our Secured Investment in a portfolio, is a smart diversification strategy for any business owner. This investment approach mitigates risk and offers greater financial security, which ultimately enables entrepreneurs to pursue a more aggressive business strategy,” he says.
The benefits of investing in a Secured Investment:
- A high-yield, no cost fixed deposit investment
- A low-risk investment that is secured by first mortgage bonds on physical properties and is highly regulated
- Every property investment opportunity is objectively analysed and evaluated against a strict set of criteria, with a maximum of 75% of the asset value loaned for the mortgage
- The fund has close on double the ratio of security (value of the properties) to outstanding loans (value of mortgage bonds), ensuring that investors are well protected
- Offers predictability with a fixed, guaranteed interest rate for the full term of the investment
- Offers flexibility to invest for income or growth to meet specific investor requirements
Digital Options With Olymp Trade – Online Trading Made Simple
Remember that communicating with others makes progress easier, so feel free to share with your fellow-traders any time and increase chances of your success!
Innovation in trading – is gain without pain possible?
In our modern age, trading has helped a lot of people earn handsomely. However, originally it was a complex exercise, involving a considerable investment of time and financial resources to understand the market. That has restricted its acceptance among people who wish to trade but have a busy schedule and limited budget.
The problem seems to have been solved to a great extent with digital options – a special form of a financial instrument. While it requires relatively less time to learn, it also reduces the risk exposure, which accounts for the growing popularity of digital options. With this type of trading, your investment amount doesn’t have to be equal to the underlying asset’s market price. So, even if the minimum price of a stock index unit is $100, you can take an exposure of just $1 on this.
A platform, which has achieved loyalty of over 16 mln. customers, despite being a late market entrant, is Olymp Trade. The company provides particular ease of use and a comprehensive educational kit, so we will use this example to explain how digital options work.
Olymp Trade – a closer look at digital options
This type of trading requires an investor to anticipate the price movement of the underlying asset in a short term. On the Olymp Trade platform the asset range includes currency pairs, commodities, cryptocurrency, various stock indices and some individual stocks. A trader would then need to place an “Up” or “Down” call relative to the strike price, without having to bother about how far the price would move. You are also required to specify the time limit for keeping the trade open – it is called expiration time, and could last from 1 minute to several hours.
Since there is no need to gauge the extent of movement, analysis of parameters like where to put ‘stop loss’ or when to book profit is not necessary – and this makes the process so much simpler. Profitability per each trade is always known beforehand, and with Olymp Trade it may reach 80-90%. Another essential point is that a trade could be sold back to the market, if the trend behaviour contradicts your forecast. This flexible approach allows to recover some of the invested money, if it’s not possible to lock in profits.
Developing a strategy that works
Since options is only intraday, fundamental analysis has almost no relevance. As a result, most of the trading happens employing technical charts. Yet, you cannot ignore the opportunity to trade based on news flow, which could actually generate higher returns than technical analysis. So, even if you are not connected with, say, Australia but sudden floods have caused huge supply disruption in the country, you could place a ‘Down‘ trade on AUD. However, one needs to be careful when analyzing the news. For instance, even if the employment figure is higher than last month, the currency could lose sharply – in case it is lower than expectations. Conversely, even if the GDP growth is negative, the currency could see a rebound if it has survived the crisis with minor damage.
The other benefit of news-based trading is that you can earn multiple times with the same news or insight. For instance, if you think dollar is going to rise substantially over the next few hours due to Fed’s move, you can place an ‘Up’ trade with a five-minute time frame. After this trade has expired, you can put another trade with the same ‘Up’ position if your judgment has turned out correctly and you still expect the price trend to continue.
Another asset class that has gained lot of limelight recently is cryptocurrencies. They are highly volatile – and this is tricky on one hand, but lucrative on the other. Olymp Trade gives you an opportunity to trade in crypto while keeping your risks limited.
Using Olymp Trade for crypto saves you the hassle of opening another account, which is usually time-consuming and involves several verification processes. More importantly, you would have to disclose a lot of personal information, which may not be very attractive proposition because the crypto-industry is still evolving. As for reliability and security, which is vitally important in trading (no matter crypto or traditional assets), Olymp Trade can guarantee it all – the company’s activities are supervised by the International Financial Commission.
The chart below gives an idea of Bitcoin price movement on a typical day. One can see clearly that there is sufficient volatility in the price to make money here.
While you cannot own or store crypto with Olymp Trade, you can certainly earn from its price movement. The platform offers a dozen different cryptocurrencies to trade, including the top ones like Bitcoin and Ethereum. However, the returns generated for this asset class vary substantially: from 10% to 80%. You also need to note that these returns keep varying all time through. So, if you traded on an asset generating 80% return at a particular time, please confirm the offered returns when placing the next trade – as it may not be the same.
How can I really profit, if I choose trading options?
We have mentioned different trading methods – from the time-tested assets to the modern-day cryptocurrencies – and it only makes the tip of the iceberg.
In order to understand the process more deeply and start profiting, one should have a systematic approach to learning. But of course your self-study should be based on trustworthy sources. We recommend taking a look at the Olymp Trade’s “Education” section, where one can find well-structured lessons and webinars dedicated to trading. The platform provides a free demo account, so the users can put their new skills into practice straight away. The benefit here is working with platform features without depositing real money. Use virtual currency for demo trading, and take as much time as you need before getting ready to open real deals for real profits.
Online trading is a very popular kind of business nowadays. If you visit Olymp Trade page on Facebook, you will find a lot of proof to that, meeting people for whom trading has become one of the main pursuits in life. Remember that communicating with others makes progress easier, so feel free to share with your fellow-traders any time and increase chances of your success!
11 Things You Need To Know About Bitcoin
The cryptocurrency has had a tumultuous existence so far.
11 Bits about Bitcoin
Even the most tech savvy among us have a hard time wrapping their heads around Bitcoin. It’s a hot topic and a frequent point of discussion among investors, entrepreneurs and stock traders, so you should want to know all about it.
For starters, here’s an overly simplified explanation of Bitcoin: It’s a digital currency (there are more than 800 now) that isn’t controlled by a central authority such as a government or bank. It’s created by “miners,” who use computers and specialised hardware to process transactions, secure the currency’s network and collect bitcoins in exchange.
Supporters say it allows for more secure transactions over the internet. That’s in part due to blockchain, a technology that records cryptocurrency transactions chronologically in a public digital ledger.
Bitcoin is only eight and a half years old, but it’s the oldest and most highly valued cryptocurrency out there. In such a short time, it’s had a rocky and controversial history, but it’s also attracted a fair share of high-profile supporters.
Click through to read 11 bits about Bitcoin that will make you at least sound like you know what you’re talking about next time it inevitably comes up.
The birth of Bitcoin
The proof was then published to a cryptocurrency mailing list in 2009. Nakamoto left the project in 2010 and disappeared, but other developers picked up the work.
Bitcoin’s birthday is Jan. 3, when Nakamoto mined the first 50 units of the currency.
An elusive creator
The true identity of Bitcoin’s creator has never been confirmed. Newsweek claimed to have found Bitcoin’s creator in 2014, identifying Temple City, Calif, resident Dorian Satoshi Nakamoto. He has vigorously denied it.
In 2015, an Australian entrepreneur named Craig Wright said he was Bitcoin’s creator, but he couldn’t produce the evidence to support his claim.
Whoever Nakamoto is, that person is very rich, as the creator is estimated to have mined a million bitcoins in the currency’s early days.
Very expensive pizza
The first transaction involving bitcoin was reported on May 22, 2010, when a programmer identified as Laszlo Hanyecz said he “successfully traded 10,000 bitcoins for pizza.”
As of June 14, 2018, 10,000 bitcoins are worth about $64.8 million.
Fintech has become a disruptive force in the financial sector that is threatening the current status quo of banking and finance. The main beneficiary of that is the consumer.
You can spend bitcoins
While it may not seem like it, people continue to use bitcoins to buy stuff.
Federal Bureau of Bitcoin
At one point, the U.S. government was one of the largest holders of bitcoin.
In 2013, after the FBI shut down Silk Road, a darknet site where people could buy drugs and other illicit goods and services, it took over bitcoin wallets controlled by the site, one of which held 144,000 bitcoins.
Investors have been making a killing by bidding on government-seized bitcoins.
A mountain-sized setback
In early 2014, Bitcoin suffered a devastating loss after the alleged hacking of Mt. Gox, a Japanese exchange.
About $460 million of the currency (in 2014 value) was stolen. It was the largest loss of bitcoins ever and raised concerns about how secure the currency was.
The billionaires’ takes
Warren Buffett, perhaps the most famous investor in the world, was not so keen on Bitcoin one of the only times he addressed the currency.
“Stay away from it. It’s a mirage, basically,” he told CNBC. “The idea that it has some huge intrinsic value is a joke in my view.”
Fellow billionaire investor Jamie Dimon, chief executive of JPMorgan Chase, had even stronger words about Bitcoin:
“You can’t have a business where people are going to invent a currency out of thin air. It won’t end well … someone is going to get killed and then the government is going to come down on it.”
But not all billionaires are against Bitcoin. Mark Cuban has said its value is inflated, but he recently invested in a venture capital fund that backs cryptocurrency. Richard Branson, however, has spoken more optimistically about it.
The rise and rise of digital currencies – and how they’re affecting your business.
Wealthy twins and a smart teen
Other notable investors in Bitcoin include Cameron and Tyler Winklevoss (the Harvard-educated twins who sued Mark Zuckerberg claiming that Facebook was based on an idea they’d had).
They invested $11 million into Bitcoin in 2013, an amount said to be about 1 percent of all bitcoins in circulation at that time. The Winklevoss twins have been petitioning the SEC to create a bitcoin exchange traded fund.
The agency rejected the idea earlier this year.
Another is investor and entrepreneur Erik Finman, who invested $1,000 into Bitcoin when he was 14 years old and is now a millionaire.
Celebrities want in
Celebrities have also expressed enthusiasm for the cryptocurrency.
Actor and Goop founder Gwyneth Paltrow advises Abra, a Bitcoin wallet, and Ashton Kutcher, Nas and Floyd Mayweather have all invested in Bitcoin start-ups.
Support from a big financial institution
In August 2017, Fidelity Investments became a rare standout among financial institutions in embracing Bitcoin and other cryptocurrencies.
The company allows its clients to use the Fidelity website to view their bitcoin holdings held through digital wallet provider Coinbase.
“This is an experiment in the spirit of learning what these crypto assets are like and how our customers may want to interact with them,” Hadley Stern, senior vice president and managing director at Fidelity Labs, told Reuters.
A hard fork
On Aug. 1 2017, Bitcoin experienced what’s being called a “hard fork” as a result of a few issues, including the limited number of transactions that can be processed per second. Essentially, the cryptocurrency split into two, with Bitcoin Cash debuting.
Here’s how Rob Marvin of PCMag explains the situation:
“The Bitcoin fork speaks to a fundamental ideological rift over what’s more important: Preserving the decentralised nature and independent control of the Bitcoin network, or accelerating transaction speeds to make the cryptocurrency more viable for mainstream ecommerce and payments.”
Bitcoin Cash allows larger blocks of currency and more transactions per second.
This article was originally posted here on Entrepreneur.com.
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