Take the stress out of retirement by getting the asset allocation in your Living Annuity right

Your retirement shouldn’t be filled with the stress of wondering whether your investments are in the right place. Once you’ve understood that high fees can be the biggest threat to your retirement income, the next question is whether your money is invested in the assets most likely to give you the investment outcomes you’re looking for. Below, 10X Investment Consultant Brett McKay walks you through the basics of asset allocation in your living annuity, to help you make the best decision for your money.

Did you know that you can speak directly to Brett about your retirement investments? There are no call centres at 10X, just experienced professionals ready to help. Simply get in touch. 

‘Asset allocation’ within your living annuity refers to the mix of different investment assets within your portfolio, such as equities, bonds, cash or property, for example. This allocation can impact the balance between the stability and growth potential of your living annuity portfolio, and should be customised according to your risk tolerance and financial goals. Equities typically produce more growth, but come with higher risks as they are more exposed to market fluctuations than bonds, for example.

Diversifying your living annuity across various asset classes also allows you to tap into different economic sectors, boosting performance and generating returns that surpass inflation. In times of market turbulence, conservative assets like bonds and cash provide stability. Offshore investments help manage country-specific risks, like a weakening Rand, and broaden access to international markets and sectors unavailable to Rand-based investors.

A thorough assessment of your financial situation, combined with proper asset allocation, can help your portfolio endure market volatility and ensure stable income throughout retirement. By strategically diversifying your assets, you can meet your income needs while safeguarding against inflation's diminishing effects on your purchasing power.

Did you know you can get a free cost comparison from 10X? We’ll look at your current investments and see whether they could be doing more for you.

Asset Allocation in Living Annuities

Your asset allocation, balancing risk and growth, is key to your annuity's long-term success. While equities provide higher returns, they carry more risk. Bonds and cash, though safer, offer lower returns. Proper asset allocation, tailored to your financial goals and risk tolerance, ensures long-term performance. Here's what to consider in your asset allocation.

Age and time horizon

As a Living Annuity investment is meant to provide an income for as long as possible, it is important to consider the long-term time horizon when setting up the investment. Retirees often make the mistake of becoming overly conservative too early in their investment strategy. While this might feel like a safer option, it's better to balance your portfolio based on your risk tolerance and investment timeline. For shorter time frames, defensive assets like bonds and cash may be suitable. However, living annuities are long-term investments, often spanning 20 to 40 years. Over such periods, equities have consistently outpaced inflation, making them an essential part of your portfolio for long-term growth.

Drawdown rate

It is very important to also consider the drawdown rate of the Living Annuity. A lower drawdown rate will ensure that the Living Annuity income is never higher than the return generated by the underlying fund. This means that you don’t need to take on any unnecessary risks when selecting the underlying funds. However, a higher drawdown rate could lead you to chase higher returns as you will need to grow the fund to ensure that the initial investment value is preserved. One needs to be wary of being too aggressive, as many Living Annuity investors cannot stomach volatile movements in the equity markets as their time horizons are typically shorter than younger investors.

Got questions on drawdown rates? Read How to avoid running out of money in retirement or get in touch with us. 

Local vs Offshore investments

Investing offshore through a living annuity provides access to a wider range of global investment opportunities and helps diversify against country-specific risks. Unlike most retirement funds limited by Regulation 28, living annuities allow up to 100% of assets to be invested offshore - something that 10X is proud to offer clients. This flexibility offers the potential for growth in international markets and reduces reliance on the local economy, enabling you to take advantage of foreign sectors, currencies, and industries that may not be available locally. 

Want to know more about offshore investing in a living annuity? Watch our webinar Building blocks to a lasting living annuity.

While offshore investments can enhance growth and diversification in your living annuity, the allocation should be balanced to manage currency risks and align with your specific financial situation and spending patterns. You also shouldn’t rely solely on past performance as a guarantee of future performance – it’s a little more complex than that. You’ll want to pay careful attention to your asset allocation and determine the right onshore and offshore exposure for your specific time horizon and investment objectives.

Furthermore, If you spend considerable time abroad or have large foreign currency expenses, aligning your assets with your liabilities becomes crucial. Determining the right offshore investment allocation requires thoughtful consideration. Although living annuities allow up to 100% offshore investment, data suggests that an allocation between 40% and 60% typically offers the best balance for Rand-based investors. This range optimises diversification benefits while minimising the risk of depleting funds due to currency fluctuations and market volatility.

Diversified asset allocation options through 10X investment funds

10X Investments offers a range of diversified funds with varying asset mixes to suit different investor profiles and time horizons: 

The 10X Your Future Fund provides diversified exposure to a range of asset classes, including stocks, bonds, and property – both locally and internationally. This fund is tailored for investors seeking long-term capital growth with a balanced approach to risk. Suitable for a variety of investor profiles, it aims to deliver returns that outpace inflation while managing volatility through diversification. This flagship fund is a great choice for those looking to secure their financial future with a well-rounded investment strategy.

The 10X International High Equity Fund is heavily invested in growth assets, primarily international equities, with a small portion in defensive assets like bonds and cash. This fund is ideal for investors with a higher risk tolerance aiming for significant capital growth over the long term (7 years and longer). With an annualised return of 13.7% since inception, it suits those who are willing to endure higher volatility for potential long-term gains​.

The 10X Defensive Fund features a higher allocation to defensive assets including bonds and cash compared to growth assets like shares and property. This fund offers cost-effective exposure to a range of local and international asset classes and is suitable for investors seeking a steady level of income along with capital growth at low volatility over the medium term. Recommended for a time horizon of 1-3 years or longer, the fund has an annualised return of 9% since inception​.

The 10X Medium Equity Fund offers a balanced mix of equities and bonds, with moderate exposure to growth assets while maintaining some defensive assets too. This fund is suitable for investors looking for a balanced approach with moderate capital growth and income over the medium to long term (5 years and longer). It has an annualised return of 11.3% since inception and is designed for those looking for a middle ground between high growth and stability​.

The 10X Money Market Fund invests in a balanced and diversified mix of short-term interest-bearing money market instruments and short-term bonds. This fund is suitable for investors seeking income and capital preservation with low risk, making it ideal for those with a short-term investment horizon of one month or longer. With an annualised return since inception of 6.6%, this fund is designed for conservative investors who prioritise stability over high returns​​.

These are just a few of our funds that cater to different financial goals and risk appetites, offering you the flexibility to choose a fund that aligns with your risk tolerance and investment objectives. Get in touch with us today, and get the retirement you deserve.