More South Africans are investing and externalising funds offshore as never before as they seek greater country diversification and enhanced returns. It makes sense to match local investments with an offshore portfolio, whether to fund regular overseas trips, a child’s education outside SA, a mortgage on an offshore property or eventual retirement in another country.
Owning a lot of names in a portfolio can be classified as diworsefication as the diversification benefit diminishes quickly while your best ideas are diluted by a long list of lower-conviction ones. Peter Lynch, legendary former manager of the Magellan Global Equity Fund, coined the word diworsefication in his 1980s investment bookto describe asset managers who spread their time and resources across too many businesses.
In the long-run, equities are best positioned to deliver returns in excess of inflation so they are necessary for real growth in assets. But equities come with higher risk.