#63: Investment clubs

We often speak to people who want to set up investment clubs. I like to fly solo, especially when it comes to money, so I never really paid attention to it. Of course, now that I might have to set one up, they suddenly seem a lot more interesting.

We've been chatting to Njabulo Nsibande (who became a dad to a baby boy last month!) about his investment club for a while now. He alerted us to the possibility of a Satrix money market ETF. His club is about the start making investment decisions. This week, Simon and I discuss his investment options, as well as the structure and format of investment clubs.

We talk about a few Moneyweb articles in this episode. First, Adrian Diergaardt won the week with his whiksy. The article that inspired him to see how much his whisky is worth is on Moneyweb here. 

Ros Brodie wrinkled my brain because of an article she read on Moneyweb. Here's how I understand it.

If you invest in an offshore ETF through a local broker, you'll experience two movements in your portfolio. Firstly, the performance of the underlying investment, the ETF, will affect your portfolio. Secondly, the rand/dollar exchange rate will move your portfolio up and down.

Offshore ETFs like the Satrix World are denominated in dollars. Your rands have to be converted to dollars before the units are bought. If the rand weakens, a single dollar can buy you more rands. Because your portfolio is in dollars, every dollar is worth more rands, pushing the value of your portfolio up in rand terms. The opposite happens when the rand strengthens against the dollar.

There is a chance that your portfolio could be profitable because the rand weakened against the dollar even if the ETF stayed flat. This has capital gains implications when you sell your ETF.

If, on the other hand, you converted your rands into dollars and bought the ETF through an offshore broker, you would only be liable for capital gains on the performance of the ETF. When you sell the ETF, you'll convert your dollars back into rands without being taxed on any profit earned there.

I can see why some people would consider going the offshore route to avoid the capital gains implications, but this can easily be more expensive than going local. I suppose the challenge is to figure out if profits from currency movements will result in more tax than the fees of investing with an offshore broker.

Kris