10X living annuity fund options: Finding the right fit

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A living annuity is a flexible post-retirement investment vehicle that allows you to draw a regular income for retirement while keeping the remaining capital invested in the market, which enables potential compound growth over time. As an investor, you have control over the investment, and you can customise your income withdrawals within regulatory limits, which are 2.5% to 17.5% annually. The freedom and flexibility on offer have many retirees choosing living annuities to provide them with income for retirement.  

With 10X, you can choose from a range of carefully curated funds, each geared towards different investor profiles. The funds you choose within your living annuity wrapper should align with your personal circumstances and retirement goals. In this article, we will take an in-depth look at the importance of fund selection. We will compare different funds, discuss the importance of offshore exposure, and run through how to choose the right levels of risk to fit with your retirement goals and plans. 

Living annuity asset allocation: Understanding growth vs stability 

When choosing a fund, you should aim for an asset allocation that matches your investor profile. Your asset allocation is a mix of the different asset classes, such as equities, bonds, real estate (property) and cash. You can also invest both locally and offshore, with living annuities allowing for 100% offshore investment. Asset allocation plays the biggest role in the performance of your living annuity, accounting for over 90% of returns, as seminal research from Brinson, Singer and Beebower shows. Let’s take a deeper look at the asset classes.  

Equities are most likely to generate the best returns over the long term, but they are also the most volatile of the asset classes. As data suggests, equities have historically produced returns above inflation by around 7% annually, over the long term (based on JSE All Share Index performance versus CPI from 1960-2020), although past performance doesn’t guarantee future results. Bonds are more stable, so this can add a level of stability to your portfolio, while real estate may provide a good hedge against inflation. Cash is the most stable and liquid of the asset classes, but may also generate the lowest returns of all the asset classes.  

As mentioned above, when you invest with 10X, you have a range of different funds to choose from, each with a different mix of assets and geared towards different investor profiles. When deciding on which funds to invest in, you should consider factors like your risk tolerance levels (how comfortable you are with market volatility), your investment timelines (how long you need your annuity to provide you with an income) and your financial goals. Diversifying across the different asset classes and markets generally allows you to take advantage of any gains on offer while also adding in some protection, thereby balancing your risk.   

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If you are a more risk-tolerant investor who is earlier in retirement, you may look at investing a higher percentage of your living annuity in equities. A more conservative investor with a shorter time horizon may prefer to include more bonds in their portfolio as a means of adding some stability to their portfolio and therefore lowering their risk.  

Living annuity fund options at 10X  

At 10X, we have several carefully designed funds which you can choose to invest in within your living annuity wrapper. Let’s have a look at some of the 10X funds on offer.  

10X Your Future Fund: This flagship fund provides access to both local and international assets, focusing on a higher percentage of growth assets like equities and property. This fund is best suited to investors looking to grow their savings over the long term, meaning 5 plus years, offering diversified exposure across multiple asset classes and geographies. Fund exposure is 63% local and 37% offshore.  

10X Moderate Fund: This is a medium to long-term fund with a minimum investment period of 3 years. There is a mix of both local and international assets, with a higher percentage of growth assets compared to the percentage of bonds and cash. The fund has a lower risk than that of a pure equity fund. Fund exposure is 65.3% local and 34.7% offshore.  

10X Defensive Fund: As its name suggests, this fund includes a higher percentage of bonds and cash versus the percentage of growth assets. This fund would be suited to an investment period of 1 to 3 years, as returns may be more volatile over periods shorter than 1 year. The fund’s objective is to generate a steady level of income together with capital growth at low volatility over the medium term. Fund exposure is 71.6% local and 28.4% offshore.   

10X International High Equity Portfolio: This diversified fund includes both local and offshore assets, with a greater allocation towards offshore investments. With strategic offshore exposure, the fund is well-suited to investors focused on international investment opportunities. Fund exposure is 73% offshore and 27% local.  

10X International Medium Equity Portfolio: This fund is best suited to investors looking for a balanced approach to diversifying internationally. 66% of the fund is invested in equities and property, both locally and internationally, while the remaining 34% is invested in bonds and cash in order to provide stability. Fund exposure is 65% offshore and 35% local.  

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10X MSCI World Index Feeder Fund This fund is 100% offshore, offering exposure to 23 developed markets around the world. It is a passively managed investment fund which tracks the performance of the MSCI World Index, which captures the performance of large and mid-cap equity securities across these 23 developed market countries.  

10X Income Fund: Another one of our flagship funds, it is designed to provide investors with a high level of income and long-term capital stability. It is a cost-effective fund including both local and international interest-bearing assets, best-suited for a time horizon of 3 years or more. Fund exposure is 83.6% local and 16.4% offshore.  

To find out more information, visit our living annuity funds page, which covers everything you’ll need to know.

Offshore exposure and why it matters  

Local investments mean investing within South Africa, in rand. Offshore investing, on the other hand, means investing internationally, often denominated in a foreign currency. With 10X, you can invest up to 100% of your living annuity offshore, as they are not subject to Regulation 28 of the Pension Funds Act.   

Diversifying your portfolio offshore may present more opportunities than what you might find locally, as the international market is a lot bigger than the local South African market, potentially providing you with increased access to different industries and geographical regions. This may also provide a hedge against local political instability and market volatility, as well as any resulting depreciation of the rand.   

As an investor, you’ll need to consider currency fluctuations when thinking about your offshore exposure. Currency risk is the potential loss that may be experienced when the value of one currency changes in relation to another currency. This can have the effect of either adding in some protection when the rand weakens, or it may have the effect of dampening your gains when the rand strengthens.   

The level of offshore exposure that you decide to include in your portfolio will depend on your investor profile. Generally speaking, you may look to include around 30% to 60% of your portfolio offshore. In some cases, investing 100% of your living annuity offshore is a strong option. For example, if you have other sources of income, you plan on moving abroad, or you have substantial local exposure elsewhere, it may make sense to invest 100% of your annuity offshore.   

Once again, you will need to assess your individual scenario and ensure that your decisions line up with your long-term financial goals.  

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Matching fund choice to your retirement profile and goals 

There are some key considerations and questions that you should ask yourself when looking at the fund selection that would suit your investor profile and long-term goals. Let’s have a look at some of these:  

• Investment timelines: How long do you require your living annuity to provide you with an income? While a younger retiree with a longer horizon may afford more growth exposure, an older retiree may opt for more stability and capital preservation.  
• Dependents: Do you have beneficiaries you would like to pass your living annuity on to? Your succession goals may help you find the right balance of growth and stability. A big part of a living annuity’s appeal is the ability to pass on the remaining capital to your beneficiaries outside of your estate, and therefore, tax-free. 
• Expenses and lifestyle: What are your current and expected expenses? Consider everyday costs, medical needs, travel plans, especially if you have plans for going abroad.  
• Other income sources: Will you have any other income streams to factor in during your retirement years, such as rental fees or consulting fees? This can impact how much risk you’re willing to take on.  
• Risk tolerance: How comfortable are you with market volatility? When you understand your appetite for risk, you can decide on whether a more conservative, balanced or growth-oriented fund mix.  

Fees, costs and net returns 

At 10X, we understand the importance of low fees and the role that these may potentially play in the growth of your living annuity over time. We therefore look to minimise fees, charging a single fee of less than 1% for most of our retirement products. Our fee structure is simple, transparent and clear for all investors to understand.   

The usual fees that you may see deducted from your living annuity are the following:  

Administration fees: This will include all fees charged for tasks related to the administration of the fund. Admin tasks may be related to tax, compliance and more.  

Management fees: These are the fees charged for the management of the fund.  

Advisor fees: An advisor will usually charge fees for their services and investment advice given. There is often both an initial and ongoing fee charged.  

Other fees: There may be other applicable fees applicable to certain products, such as exit fees.   

High fees may mean that there are fewer returns available to be reinvested and allowed to potentially grow and compound over time. Lower fees, on the other hand, may mean that there are more returns available to be reinvested and potentially compound and grow over the long term.   

Let’s look at an example which shows fees of 0.86% which you may expect from 10X, compared with fees of 3% and the effect of this on your living annuity.  

• Investment amount: R4 million 
• Investment period of 25 years 
• Drawdown rate: 4% 
• Return of 12% per annum 
• An inflation rate of 6% 

 Example 1 (0.86% Fees): Real investment value is approximately R4.70 million. 

Example 2 (3% Fees): Real investment value is approximately R2.89 million.  

As this example illustrates, a relatively small difference in fees can significantly impact the real investment value of your living annuity when compounded over 25 years. This example is for illustrative purposes only, and actual results may vary. You can learn more about fees here.   

The Effective Annual Cost (EAC) is a standardised metric introduced by ASISA in 2015. This is a means by which you can view all of the costs and fees associated with owning an investment over a one-year period of time. All factors being equal, you may expect to find that a higher EAC means that there are fewer returns to be reinvested and allowed to compound over time. A lower EAC, on the other hand, may mean that there are more returns available to be reinvested and allowed to potentially compound over time.   

The EAC of your investment should be just one factor to consider when you are evaluating service providers. Consider using our EAC calculator, part of our free suite of online tools. 

Final thoughts on living annuity fund selection  

As an investor and retiree, you’ll need to ensure that your fund choice always aligns with your financial goals, risk-tolerance levels and investment timelines. These 3 factors are crucial when it comes to planning and reviewing your living annuity. Always consider your goals when considering growth versus stability, where you stand on local versus offshore investing, and what you are paying in fees.  

Consider the available fund options and make an informed and educated decision using all the resources available to you. 10X’s variety of funds within the living annuity wrapper is suited to a range of different investor profiles, meaning there is definitely a fund to suit you. Enjoy superior returns, low fees, superb service and up to 100% offshore exposure when you invest with 10X. To find out more about our living annuity fund options, or for any other investment questions you may have, get in touch with our investment consultants today!