n 2004 the ZAR to US $ exchange rate
was R6.45, ten years on and the
forecast for 2014 is R11.45.
South Africa like it or not is part of the
global economy. In effect everything we are purchasing is priced in US Dollars. From our groceries and fuel to luxury items everyday items are priced according to global exchange rates. Yet, the majority of South Africans save in Rands and yet the price of goods we purchase is in reality priced in US dollars.
To prove the point on the difference this can make to one’s savings and wealth management, we can go back 10 years with the following synopsis. In the first illustration we take the value of your investments in 2004 as R500,000. Ten years on, they are valued at R1,000,000 with 10% annual growth. You may be inclined to think that this investment has performed well, 100% return for the ten year period.
Rand vs US Dollar
However, we need to consider the real return of the investment in US Dollars as per table below:.
Below: Investment of R500,000 in 2004 and 2014 represented in ZAR and US $
Value of Wealth 2004 2014 %Growth
South African Rands ZAR 500,000.00 ZAR 1,000,000.00 100%
US Dollars $77,519.38 $87,336.24 11%
Although the investment grew by 100% in ZAR (without taking inflation into consideration) in global terms (US dollars) the investment only grew by 11% for the ten year term, an annualized return of just 1.2%.
Now for the case of investing the Rands into a US Dollar investment into a fund tracking the S&P 500. The S&P 500 index average return over the period was 7.8 % a 10 year return of 67.47% (dividends reinvested)
Value of Wealth 2004 2014 %Growth
US Dollars $77,519.38 $129,823.26 67%
South African Rands ZAR 500,000.00 ZAR 1,486,476.28 297%
Below: Investment made offshore in S&P 500 index in 2004 represented in
US Dollar and ZAR returns
The outcome is clear; the US Dollar investment outperformed the Rand investment. If one has to take inflation into account then it is even a stronger case for the US Dollar investment.
If you want to protect your wealth and grow it in the global economy then you need to consider investing offshore. There are many local investment companies based in South Africa that offer seamless offshore investment and give you full control from our shores.
Wealth Management Advisor
JULY 2014 - 31
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