Making your money work hard offshore

Kirstie Spicer writes that investors could be facing one of their last chances to make the most of a higher dollar and invest some cash offshore as the RBA tries to jawbone the Australian dollar lower once again.

FOR those of us with spare cash, European holidays are not the only way you can make the most of the waning strength of the Australian dollar.

Right now, investors could be facing one of their last chances to make the most of a higher dollar and invest some cash offshore as the RBA tries to jawbone the Australian dollar lower once again.

The urgency lies in the fact that as the dollar weakens against other currencies, it makes international shares more expensive for those of us living and working in Australia.

While the Australian dollar is now trading around the 76c mark against the US dollar, it is likely to fall much lower in the longer term.

According to experts, it’s a matter of when — not if — the currency will weaken further.

Australian investors suffer a serious case of home bias, which means only they prefer buying domestic shares.

This is confirmed by the fact that self-managed super funds have less than 1 per cent of assets invested abroad.

Had you shipped some money offshore in recent times, you would have collected a better return than on your Australian shares.

Investing in European, Japanese, US or even a global fund would have returned more than your Australian shares over three and five-year periods (up to December 2014).

We often talk about the struggles of the Australian economy relative to our peers, but the sharemarket rarely gets a mention.

As the returns show, our local market isn’t the best place to stash all your money.

The reasons why you might look to invest in other countries are varied and span beyond just returns.

It helps diversify your portfolio, which can reduce the reliance you might have on Australian shares and lets you access some of the biggest brand names.

As we know, the Australian market is heavily influenced by the ‘big four’ banks.

In fact financial companies make up nearly half of the ASX 200 by value.

Investing in other markets, like the US, Europe or perhaps even India, means you are decreasing the dependence on one sector, or country.

Bank shares won’t always be the darlings of the market.

And when that time comes your savings will be able to weather the storm more smoothly if Australian shares aren’t your only equity investments.

The beauty of multinational companies is their wealth isn’t tied to their home countries — they are truly global.

It offers you a chance to have investments in countries with different economic conditions to Australia’s and means being less dependent on one market for success.

Investing offshore also gives you exposure to a falling Australian dollar, which boosts your returns.

If you invested $10,000 in one of the biggest US stock markets, the S&P 500, three years ago, it would be worth more than $21,000 today.

That’s due to the fact that the market there has been improving since the devastation of the Global Financial Crisis, plus the fall in the Australian dollar has supercharged those returns.

But for US-based investors, their $10,000 be worth $17,000. In this case, the value of the currency was substantial.

But hoping to benefit from a falling currency is never
a good enough reason on
its own.

Any investment in international shares also needs to be based on sound reasons — it needs to be a well-run company, available at a reasonable price, with good long-term prospects.

Buying international shares directly means you need a broker that can execute this for you and the patience to fill out some paperwork.

Realistically though, this isn’t the best option.

Just because you know a brand name doesn’t mean it is a great investment.

Delegating the decision- making to an investment professional is a good way to go when it comes to investing offshore.

There are some great fund managers out there; Magellan Financial Group and Platinum Asset Management specialise in international investing.

The past performance of both these managers is the reason why they are so popular with investors, although as in all investing, there are never guarantees they will continue to be star performers.

But if you find the right way to invest, and choose wisely, who knows — perhaps your investment might fund more than one holiday in the next few years.