Offshore exposure inside your TFSA: Currency risk, benefits, diversification, and when it makes sense

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A tax-free savings account is a flexible long-term investment vehicle that allows you to invest both locally and offshore within the tax-free savings account “wrapper” in line with your portfolio diversification preferences. Because there are no restrictions on underlying fund choice applicable to tax-free savings accounts, such as Regulation 28, you can invest 100% offshore. However, you will need to ensure your service provider can offer this.

In this article, we will guide you through how to include offshore exposure in your portfolio, along with the pros and cons. We will also look at how to structure your offshore asset allocation to ensure it is well aligned with your investor profile and long-term financial goals.

Recap of the tax-free savings account

A tax-free savings account (TFSA) is not a savings account in the usual sense; it is a long-term investment account that can benefit significantly from compound growth. This product was introduced in 2015 to incentivise South Africans to save through tax benefits. The growth within your tax-free savings account is tax-free, so more of your returns can be reinvested and potentially compounded over the long term.

There are limits on contributions, so keep these in mind when planning your strategy: the maximum annual contribution is R46,000, and the maximum lifetime allowance is R500,000. Penalties of 40% may be imposed on any excess contributions, so it is important that you stick to these limits.

Growth within the tax-free savings account is tax-free, meaning there is no capital gains tax, interest, or dividends tax. This may mean that there are potentially more available returns to grow and compound over time. Within the TFSA “wrapper”, you are able to select your underlying funds; these funds can be a mix of both local and/or offshore funds.

There are also no restrictions on withdrawals. Keep in mind, however, that once you withdraw from your TFSA, the contribution room is used and cannot be added back to the account. Generally, experts suggest avoiding withdrawals to fully benefit from compound growth over time.

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The importance of asset allocation for your TFSA

The first step in considering your asset allocation is to review both your investor profile and your long-term financial plan. Your investor profile consists of your risk tolerance and investment time horizon. Risk tolerance refers to your appetite for risk. Ask yourself if you are more risk-tolerant or risk-averse. Your investment timeline refers to the purpose of your TFSA and how long you plan to keep your savings invested. You would also always refer back to your long-term financial plan when considering the appropriate asset allocation for your situation.

Your asset allocation is usually a mix of equities, real estate, bonds, and cash. 10X gives investors the freedom to adjust underlying portfolios by choosing from a selection of carefully curated investment funds, each with a different mix of assets and geared towards different investor profiles.

Cash is the most stable of the asset classes, but it is also likely to generate the lowest returns of all the asset classes. Bonds will add some stability to the portfolio, but are also likely to generate some lower returns. This doesn’t mean bonds will never outperform expectations, merely that they are seen as a more conservative option. Real estate can generate some strong returns while serving as a hedge against inflation. Equities are likely to generate the best returns of all over the long term, but they are also generally thought to be 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) - but past performance does not guarantee future results.

10X offers a range of diverse funds within our TFSA “wrapper”. These funds are suited for different investor profiles. You are able to switch funds to accommodate your changing needs and circumstances over time. We understand the importance of asset allocation at 10X and the impact that this may have on the long-term growth of your TFSA. As such, we offer different funds to suit a range of investor profiles. Please explore our funds page for the most up-to-date fund information.

Local investing versus offshore investing

Local investing is when you choose to invest your savings locally, for example, in equities denominated in Rands. Offshore investing is when you invest outside South Africa, for example, in offshore equities denominated in a different currency, such as US dollars. As mentioned previously, you may choose to invest 100% locally, 100% offshore, or a mix of both.

It is generally considered a good idea to diversify your portfolio across regions, asset classes, and similar factors to balance risk and reward. Including offshore exposure within the TFSA “wrapper” can be a good hedge against local market and political instability. It may also be a good hedge against any depreciation of the Rand. The South African market is fairly small compared to the global market, with the local SA market accounting for less than 1% of the global market capitalisation. The global market can mean greater access to more industries and companies, which could appeal to some investors.

What is currency risk?

Currency risk can work either for you or against you. It can add some protection when the Rand weakens, or it could have the opposite effect and dampen your returns when the Rand strengthens. Essentially, currency risk is the risk that arises when the value of one currency moves relative to another. This may mean that the value of your tax-free savings account is affected by both the performance of your underlying offshore funds and exchange rate fluctuations. For example, if your offshore fund performs poorly and the Rand also depreciates, the combined effect of these events may result in a larger capital loss than would otherwise have been the case.

Tax-free savings account fees

Regardless of whether you invest your TFSA locally or offshore, fees will still be an important consideration. Fees may affect the final investment value of your TFSA, especially when compounded over the long term. High fees may mean that you have fewer returns available to reinvest. On the other hand, lower fees may mean there are more returns available for reinvestment and potential growth over the long term. These are some fees that you may see deducted from your TFSA:

• Management fees: These are the fees charged for the running and managing of the fund.
• Administration fees: Fees will be charged for administration that is related to the fund. This will be for tasks such as compliance, tax, and reporting.
• Advisor fees: Advisors will provide advice and other services. They will usually charge both an initial and an annual fee for this.

The Effective Annual Cost (EAC) is a standardised metric which ASISA introduced in 2015. This metric allows you to see the total fees and costs associated with owning an investment product over a one-year period of time. This information can then be used to compare and evaluate service providers. At 10X, we offer a helpful EAC calculator as part of our online suite of tools. This calculator allows you to compare the costs of your current service provider with those charged by 10X.

Let’s look at an example of 1% in fees vs 3% in fees. We will assume the following information:

• Monthly contribution: R3,833
• TFSA lifetime limit: R500,000
• Investment term: 30 years
• Annual return: 12%
• Annual inflation: 6%

Contributions will stop once the limit is reached to avoid any penalties, but the money remains invested for the full 30 years. The returns are compounded monthly and adjusted for inflation to determine the final values.

Example 1 (1% in fees): After 30 years, the final investment value is approximately R1,4M

Example 2 (3% in fees): After 30 years, the final investment value is approximately R816,000

This example is for illustrative purposes only, and actual results may vary. You can learn more about how fees impact final investment value here.

How much offshore exposure should you hold inside a tax-free savings account?

There is no one-size-fits-all answer when it comes to offshore exposure within a tax-free savings account. This is a personal decision which can vary from investor to investor. The appropriate allocation will depend on factors such as your investor profile, risk tolerance, investment timeline, existing portfolio, and long-term financial goals.

Investors should consider how offshore exposure fits into the overall investment strategy and diversification goals, rather than focusing on a specific percentage.

Framework based on investment horizon

A TFSA should ideally be a long-term savings investment. This allows investors to maximise the benefits of tax-free growth and compound returns over time. Investors with a longer investment horizon may therefore be comfortable taking on more exposure to growth assets, including offshore equities. In some cases, investors may choose to invest their tax-free savings account entirely offshore.

Investors with shorter investment horizons or a lower tolerance for risk may prefer a more balanced approach, with a smaller portion of the TFSA invested offshore. While there is no fixed rule, some investors may feel more comfortable allocating around 30% to 40% offshore while maintaining meaningful local exposure.

Investors concerned about local market concentration, political uncertainty or potential Rand depreciation may also choose to increase their offshore allocation as part of a wider diversification strategy.

At 10X, we offer a cost-effective, transparent TFSA that can be invested 100% offshore, if this is your preference.

This TFSA calculator offered by 10X as part of our suite of online resources can be a useful tool to work out the potential growth of your TFSA over time.

Framework based on portfolio outside the TFSA

It’s also important to look at your wider investment portfolio when deciding on your offshore allocation. Your TFSA should not be viewed in isolation.

For example, if most of your investments are already concentrated in South African assets through retirement funds or other local investments, you may choose to use your TFSA to increase offshore exposure. On the other hand, if a significant portion of your wealth is already invested internationally, you may decide that a lower offshore allocation within your tax-free savings account is appropriate.

The goal should be to build a well-diversified portfolio aligned with your long-term financial plan, balancing growth opportunities, risk management, and personal investment preferences.

Offshore exposure at 10X: How it works in practice

Global index-tracking approach

10X uses an index-tracking investment strategy that also includes a more active approach to asset allocation. An index-tracking investment strategy is when a benchmark index is mirrored in order to try to obtain the same returns as this particular benchmark index. This approach can be more cost-effective as there are fewer costs involved, which may mean fewer fees will be passed on to the investor.

An actively managed strategy is one in which a fund manager aims to pick the best stocks. This process may involve research, analysis and trading costs. The greater number of activities associated with this strategy may lead to higher costs and possibly higher fees for the investor. This approach may not always work as intended, either, as data from the SPIVA scorecards suggest.

The S&P Indices Versus Active (SPIVA) Scorecards track the performance of actively managed funds against their benchmarks globally. According to the latest SPIVA South Africa Scorecard (as of June 2025), 67.61% of South African actively managed equity funds underperformed the S&P South Africa DSW Capped Index over the ten-year period ending June 30, 2025.

You can find out more about our investment strategy at 10X here.

10X’s fee advantage

10X offers a low-cost, simple and transparent fee structure. This allows for more returns to be reinvested and potentially grow over the long term. Fees charged are usually 1% or less, but this does depend on the product selected and the amount invested. Please visit our website for the most up-to-date fee information. Fee information is correct as of 2 June 2026.

10X MSCI World Index Feeder Fund

The 10X MSCI World Index Feeder Fund is a 100% offshore investment option from 10X. The fund offers offshore exposure by tracking the MSCI World Index, which reflects the performance of large- and mid-cap equity securities across 23 developed market countries.

By investing in the dollar-based iShares Developed World Index Fund (UCITS) domiciled in Ireland, the fund aims to closely track the index’s performance in ZAR, maximising long-term capital growth through a diversified global equity portfolio.

Final thoughts: the role of offshore exposure in a long-term tax-free savings account strategy

Offshore exposure within your TFSA can be a powerful tool. Factors such as diversification, hedging against volatility in the South African market, possible extensive offshore opportunities and potential growth can all make offshore investing attractive.

As an investor, you want to ensure that your offshore exposure is well aligned with your investor profile and long-term financial plan. Get in touch with the investment consultants at 10X to help you get started today!