We all have a unique prism through which we make sense of the world. A large part of how we think about our wealth is a result of the environment we were raised in — how we were nurtured during our formative years.
Exchange controls were first implemented in 1939 at the outbreak of World War 2, with the goal of preventing South African capital from reaching enemy Axis forces. This restrictive, bureaucratic oversight of capital has continued to this day. Indeed, prior to 1995, investment outside SA’s borders was expressly prohibited: we were a closed country in terms of capital movement.
Investing in a closed-loop system is more stable and profitable than in an open one — until the closed-loop system is exposed to the competition pressures of the free market: then the inefficiencies and waste of one are brought to light by the dynamism of the other.SA’s regulatory situation and its history are far from normal. About 87% of countries worldwide have no exchange controls, meaning citizens can invest their wealth in other countries, in line with the principles of global capitalism.
Start with the beginning in mind: what do you want to achieve? If you are a rational investor the response will be: the highest return for the least level of risk. How do you achieve that? Simple, pick an investment strategy that focuses on harnessing near-limitless global opportunities rather than the handful of domestic ones. Utilise a full set of investment options rather than constrain yourself to any one company, region or sector.
Given these advantages, what amount of wealth did experts from a Wall Street Journal panel recommend US investors place outside of their domestic borders? The consensus was about one third, despite the much-diminished diversification and return benefits a US investor receives in comparison to a South African.