Question:
I have 3 paid up retirement annuities with Liberty Life. I am currently living in Australia, and am unsure what to do about them. We are not sure if we will get permanent residence here, but that is our aim. I am concerned that if I leave the money invested in South Africa they will devaluate, but if I transfer the investment to Australia and we do not have permanent residency granted, then I will need to transfer the money back to South Africa in years to come, perhaps 20 years or less. What advice can you give me regarding this please, bearing in mind the decline in the value of the rand and the stability of the Australian dollar? Thank you
Answer:
Deborah, Over the long-term, your investments deliver a return that is linked to the real asset class (shares, bonds, cash) real return PLUS inflation. Similarly, over the long-term, relative currency movements are linked to differences in underlying inflation between countries. The point is that over the long-term, these two things tend to cancel each out: if the rand weakens because our inflation is higher than Australia's our nominal (after-inflation) asset class returns will also be higher. Or, to put it another way, your real inflation returns in South Africa and Australia should be relatively similar over the long-term so it does not matter whether your leave your money here, or take it to Australia.
That is the theory anyway, but in the short term these relationships tend to go badly out of whack, which could cost you (or provide a windfall) at the time you need to "export" your money. Note also that the stable AUD is not guaranteed and nor is the weakening SA currency. We have seen the rand double in value before - it reached almost R13 to the US dollar around 2003, and then it went all the way back to around R6 to the US dollar.
But given this short-term volatility, the broad principle is that you should build your retirement asset dominantly in the same currency that you will incur your retirement expenses. If you do not know where you will retire, you should consider hedging your bets, by having and growing savings in both countries, at least until you have certainty on the matter.
