How offshore investments work within a 10X Preservation Fund

Note: Asset allocations within 10X funds change regularly as we adjust for market conditions. The asset allocations below are correct as of 18th November 2024. Please check the funds page for up to date figures.

A preservation fund is a useful retirement savings investment product that can keep your retirement savings preserved and continuously growing despite job changes. The goal of retirement planning is to ensure that you have enough money to last you throughout retirement. While this starts with putting away a portion of your income every month to preserve for retirement, the next steps involve making sure that your savings can compound efficiently so that you can keep pace with (or even, hopefully, outpace) inflation as you transition into, and through, your golden years.

Job changes and cashing out early can punctuate this compounding process with unnecessary pauses – something that can prove detrimental to your future retirement plans. This is where preservation funds prove effective. Rather than halting the growth of your retirement savings or cashing out your hard-earned capital before retirement, a preservation fund allows you to transfer your savings from a pension or provident fund when leaving a job, without triggering tax penalties. This ensures that your retirement savings remain invested and benefit from compound growth until retirement. Unlike cashing out these savings, which halts growth and incurs tax, preservation funds allow for a smooth, tax-free transfer and the ability to keep your investment growing in the face of rising inflation rates.

Inflation presents an ever-present impact on purchasing power, meaning in future you won’t be able to buy everything you can buy today with a given amount of money. To combat the effects on inflation, you need your investments to return more than inflation every year to grow in terms of tomorrow’s money. How much more? Well, that depends on the fees you’re paying and how much your retirement plan requires you to save before you begin drawing income from your retirement investments.

Key to effective investment growth are the assets underlying those investments. Strategic asset allocation strategies prevent your investments from being concentrated in any one place (a particular market, sector or geography, for example). Above and beyond diversified local assets, plenty of investors are looking to diversify their portfolios internationally, with the goal of further reducing exposure to local political and economic risks. Offshore investments within your preservation fund can help you safeguard your retirement savings against country-specific risks. While a preservation fund does not offer the same freedom that a living annuity can give in terms of offshore investing, understanding your offshore exposure is still useful, especially if you want to consider a fund with more or less of it than you currently have.

At 10X Investments, our funds are structured with diversified asset allocation in mind, and offer various levels of offshore exposure to suit your strategy, ranging from 34.6% within our 10X Your Future Fund, to 10.1% in the 10X Income fund and 0% in our Money Market fund (all of which are available to preservation fund investors). In this quick read, we’ll be covering everything you need to know about offshore investments within a preservation fund, from rules and regulations to diversified asset allocation, as well as a few more methods to combat inflation risks to your retirement savings.

A Brief Recap of Preservation Funds

Preservation funds are primarily used to keep retirement savings on track despite job changes. This type of retirement savings investment product can help you avoid cashing out early and halting the growth of your retirement savings while also offering tax efficiency, flexibility, and the ability to consolidate savings from multiple employers over time (but keep in mind, you can't keep adding to the same preservation fund. You are legally only allowed one preservation fund per pension/provident fund).

Make use of our two-pot calculator and assess the impact of the new two-pot system on your retirement savings as of 1 September 2024.

By keeping your retirement savings invested, you can maximise the long-term growth potential of your accumulated savings, and make sure that you have sufficient funds available for when you retire. Essentially, a preservation fund can be a valuable tool for individuals who go through multiple employers contributing to different pension funds throughout their careers, promoting disciplined and sustainable retirement planning.

Rules Governing Offshore Investments In Preservation Funds

Plenty of pre- and post-retirees all over South Africa are moving their money out of the country and investing offshore. People are considering investing abroad for a variety of reasons including increased diversification, global growth exposure, hedging against potential rand depreciation, and a somewhat urgent effort to mitigate South Africa’s political and economic risks.

Unlike domestic investments, offshore investment options allow investors to access global economies and foreign currencies for broader diversification. This is an appealing option for investors hoping to boost their retirement savings over the long term and safeguard their retirement funds against rising inflation rates. But what are the rules, and how much offshore investment are you allowed with in your preservation fund? We’ll be covering a few crucial rules governing preservation funds and offshore investing below.

How Much Can I Invest Offshore With A Preservation Fund?

In 2022, the National Treasury introduced major adjustments to the rules governing the portion of South African retirement portfolios that can be invested offshore, essentially expanding foreign investment opportunities. This change is considered to be beneficial for South African investors in the long run, as it offers increased diversification and the flexibility to further tap into global markets. Previously, limits permitted 30% investment outside South Africa, plus an additional 10% within Africa, for a maximum of 40%. Now, according to Regulation 28 of the Pension Funds Act, retirement annuity, pension/provident and preservation fund investors can allocate up to 45% of their portfolios offshore.

How Much Should I Invest Offshore?

Having the option to invest offshore with access to international markets means you have a chance to diversify your preservation fund portfolio more effectively, helping to manage risk and potentially boost returns to grow your retirement savings further. However, diversified asset allocation isn't just about investing offshore for a shot at consistent returns; it’s also important to consider what local investments have to offer. This approach helps you safeguard portfolio performance when one asset class underperforms, as gains from other areas can offset losses, making it easier to stay committed to your strategy.

In simple terms, relying heavily on offshore investing to boost your returns is not often considered a solid investment strategy. You want to diversify your portfolio to manage and mitigate risk – and offshore investing comes with its own set of risks to consider.

What Are The Risks Of Investing Offshore?

As mentioned earlier, a lot of investors in South Africa are increasingly looking offshore to reduce local economic risks. Concerns over a weakening Rand and uncertain economic outlooks have driven this trend, and many investors view offshore investing as a way to shield their retirement savings from currency depreciation and possible political instability. In the same breath, however, many overlook the primary risk that comes with adding foreign investments to a retirement savings portfolio: currency volatility.

The Rand is notorious for its frequent swings against major currencies. Although it has generally depreciated over the long term, short-term fluctuations are to be expected. This means that while a weakening Rand might enhance returns on offshore investments, a strengthening Rand can greatly reduce them. If your offshore investments perform, and the Rand weakens, you do better. If your offshore investments do poorly, and the Rand strengthens, you do that much worse.

What About My Provider’s Limitations?

While regulatory limits dictate up to 45% offshore exposure in preservation funds, specific providers can also have their own policies in place. Some providers might implement their own limits for a variety of reasons and some might have reached their overall offshore capacity; once a provider reaches the 45% offshore investment threshold across all of their managed assets, they cannot increase their foreign exposure any further and their investors will encounter restrictions. If this is a problem you’ve run into when considering investing offshore with your preservation fund, 10X has a viable solution for you.

How Can I Increase My Offshore Exposure?

10X has a range of funds available for preservation fund investors, all with differing offshore investment allocations.

The 10X Your Future Fund offers a balanced, cost-efficient asset allocation mix geared towards long-term capital growth. With a focus on diversified asset allocation across both local and international assets, our flagship fund boasts consistent and superior returns to bolster your retirement savings. It maintains approximately 65.3% in South African assets, including equities, bonds, property, and cash, ensuring substantial exposure to the local market alongside a 34.6% allocation offshore. For investors looking to minimise risks associated with South African economic volatility, the 10X Your Future Fund stands out, tapping into growth opportunities globally while avoiding concentration risk that could put your retirement savings in jeopardy.

To top it off, our low, transparent fee structure aims to enhance compounding effects, so that more of your money can be reinvested and generate returns that keep pace with inflation. By striking a balance between growth and stability across various asset classes, the 10X Your Future Fund aims to deliver strong, inflation-resistant returns and so that you can build sustainable retirement savings to fund your lifestyle throughout your retirement.

Try out our preservation fund calculator to see how much you could maximise your savings with 10X.

Other 10X fund options available to you for offshore investing in your preservation fund include the following:

The 10X Income Fund is designed to provide a reliable income stream while preserving capital; this option is often best suited to investors with a shorter time horizon who prioritise stability over investment growth. The fund invests predominantly in low-risk assets, with an allocation of 89.9% in local assets and 10.1% offshore.

The 10X Defensive Fund aims to deliver steady, modest growth with a primary focus on protecting capital. It allocates 75.2% to local assets and 24.8% to offshore investments, ideal for cautious investors focusing on preservation of capital over aggressive growth.

For a slightly more balanced approach, the 10X Moderate Fund focusses on both growth and income by diversifying across various asset classes, with 70.1% invested in local assets and 29.9% in offshore assets.

Asset Allocation For Inflation Protection

With 10X Investments, you have the flexibility to structure your investment portfolio according to your personal needs, time horizon, and retirement goals. You can select from a range of underlying funds that suit your risk tolerance, with options across various asset classes including offshore investments. Giving some thought and consideration to your asset allocation, emphasising diversification, and adjusting your portfolio as you transition through life can help you navigate market volatility, all the while keeping your retirement savings on track.

A balanced portfolio encourages consistent growth and also helps counter the effects of inflation, helping you maintain your purchasing power and supporting long-term financial security for future success. If you want to discuss your options, speak to an experienced 10X investment consultant at no cost to you. There are no call centres at 10X, just experts who are keen to help.

The Impact of High Fees

Fees are a crucial factor in the success of your investments. Low fees support sustainable, long-term growth, while high fees can substantially reduce returns, eroding the value of your savings over time. Compounding against you over years, high fees diminish returns and impact capital. Lower fees, on the other hand, allow more of your returns to be reinvested, enhancing the benefits of compounding. By keeping fees minimal, you can extend the life of your retirement savings, better withstand inflation's impact on your investments, and set yourself up for a secure retirement.

Calculate the true cost of managing your investments with our EAC calculator, allowing you to weigh up your options, compare providers, and see how much you could be saving with 10X.

Similarly, inflation reduces the purchasing power of your returns, lowering the real value of your investments over time. This impact can be especially significant in conjunction with high fees. While inflation is beyond your control, you do have influence over the fees you pay and the providers you choose. Opting for a low-fee provider and actively managing your retirement savings using effective tools and portfolio resources can help you protect and grow your savings with confidence.

Manage Your Money On Your Own Terms

If you’d like to invest confidently but don’t want to increase costs by paying for a financial advisor, all you need is access to the right tools and resources, the correct information, and the confidence to be your own investment hero. When you’re educated on how to manage your personal finances and investment strategies, you can make informed decisions for your financial future while saving on advisory fees (and giving yourself the opportunity for significantly more retirement income in the process).

Increase your overall returns and reduce advisory fees by managing your investments independently with 10X Investments. We support independent investors by supplying a selection of useful resources, allowing you to lower your fees and get the most out of your preservation fund investment. From webinars to calculators, 10X has numerous tools available so that you can manage your investments effectively. And, remember, we also have expert investment consultants available to you at no extra cost.