after-retirement

Offshore vs local living annuity asset allocation: Finding the right balance

2 September 2025

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Simon Brown
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Andre Tuck
With Simon Brown (MoneywebNOW) and Andre Tuck (10X Investments)
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As an investor, a common challenge you face is whether to invest your living annuity locally, offshore, or a combination of both. The choices made regarding your asset allocation can significantly impact the long-term growth of your living annuity, and it’s essential to be fully aware of the risks and benefits associated with local and offshore investments. Diversification and currency exposure are two key elements to keep in mind when managing your living annuity.   

In this article, we will get into more detail about the advantages and disadvantages of investing your savings locally vs offshore within your living annuity wrapper. By staying informed about local versus offshore investments, you can find the right balance for your personal circumstances.  

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A quick recap of living annuities 

A living annuity is a flexible post-retirement investment vehicle, where you, as the retiree, can draw a regular income while keeping the capital amount invested, allowing it to potentially grow and compound over time. The money is transferred from a retirement product, such as a retirement annuity or pension/provident fund, to a living annuity upon retirement. In South Africa, you can retire from age 55, but many people work well into their 60s or later. 

A major selling point of living annuities is the flexibility being offered, particularly in terms of the drawdown rate and asset allocation, which you have a direct say in. The drawdown rate is the percentage of the total value of your living annuity, which is drawn as an income on an annual basis. This may be a rate of between 2.5% and 17.5% per annum, and is selected each year before the policy’s anniversary date. The drawdown rate you decide on generally depends on your income needs for that year.  

If your income requirements increase for that particular year, you may wish to increase your drawdown rate, and conversely, if your income requirements decrease for the next year, you may wish to drop your drawdown rate to preserve your capital. Financial experts generally consider 4% to be a sustainable drawdown rate, but this is merely a guideline. The responsibility lies with you when it comes to managing your living annuity and ensuring that the drawdown rate is sustainable. The goal is for your capital to last throughout your retirement years.  

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The importance of living annuity asset allocation  

The asset allocation refers to the mix of the different asset classes in which your annuity capital is invested. This is usually a selection of equities, bonds, real estate (property) and cash. And of course, you may also look to invest in offshore assets. Living annuities are not governed by Regulation 28 of the Pension Funds act, and as such, 100% of your living annuity can be invested offshore should you wish it to. 

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As an investor, you can customise your underlying portfolio by choosing from a selection of carefully curated funds, each with a different asset allocation, geared towards different investor profiles. Your risk profile, time horizon and financial goals should guide the choice you make. Some funds may prioritise offshore investments while others may prioritise local investments. As an investor, you will have to decide which is best for you.  

Your portfolio can be amended to accommodate changing financial goals or circumstances and should, therefore, be regularly reviewed. As a living annuity is considered a long-term investment that may span 20 to 40 years, the need for changes will almost certainly arise.   

Equities are considered the most volatile of the asset classes, while also producing the best returns over time. 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. Bonds add stability to a portfolio, but they may also produce lower returns, while cash is the most stable and liquid of the asset classes, but likely to produce the lowest returns.  

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10X offers a range of diverse funds within its living annuity wrapper. These funds are suited for different investor profiles and risk levels, while also focusing on long-term results. At 10X, we understand the importance of asset allocation and believe it plays an important role in the long-term success of your portfolio. We have funds to suit a range of different investor profiles. To find out more about our funds on offer, click here

Understanding offshore and local investments  

Offshore investments refer to assets located outside of South Africa and denominated in a foreign currency. For example, global equities that are denominated in USD. Local investments, on the other hand, refer to assets based in South Africa, such as South African equities, and are denominated in Rands.  

You can invest 100% of your living annuity offshore. As an investor, you therefore have to decide whether to invest locally, offshore, or both. Generally, a mix of both local and offshore investments within your living annuity allows you to diversify and take advantage of both markets. The offshore exposure may also add some protection from any local market volatility and currency depreciation. This also comes with its own risks, such as currency fluctuations.   

Why offshore exposure matters in a living annuity  

Including offshore exposure can be important when it comes to structuring your annuity, as it adds some protection against any local market volatility, political instability and/or depreciation of the rand. The offshore exposure serves as a powerful buffer to these challenges.  

The South African market is relatively small, especially when compared to the international market, with it making up less than 1% of the total global market capitalisation. The international market is a lot larger, and with this comes more potential opportunities. There is a bigger variety of industries and companies to diversify across, whereas the South African market is more limited. 

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One example of local market instability which hurt the rand was at the end of 2015, when the President at the time, Jacob Zuma, abruptly fired the Finance Minister, Nhlanhla Nene. This resulted in the rand depreciating from ZAR 14.50 to the USD to ZAR 17.50 to the USD in just a few short weeks. In a case like the above, offshore-heavy portfolios would have seen strong growth. 

Balancing risk through diversification 

Diversifying across asset classes is an important strategy to incorporate when investing, as it gives you the power to balance both risk and reward. Diversifying across regions and economies allows you to take advantage of market gains in certain areas while at the same time mitigating against any losses in other areas. By using a mix of both offshore and local assets and a mix of different asset classes, you are potentially reducing your risk.  

Oftentimes, local and offshore asset classes perform differently, depending on a range of different factors. At times, you may find that local investments do better than offshore investments and other times, offshore investments may do better than local investments. A well-diversified portfolio is generally considered the ideal move. Most people want to aim for a portfolio that is relatively stable and able to ride out market volatility. Diversifying across regions and asset classes is a good means of doing this.  

So, when does it make sense to think about more offshore exposure in your living annuity? This largely depends on your personal circumstances.  

For investors who plan to emigrate or spend a large portion of retirement overseas, offshore investments reduce the risk of the rand weakening and hurting your purchasing power. The same applies to those who spend heavily on foreign travel, overseas property or supporting family abroad, as offshore allocation aligns your investments with your expenses. If you have sufficient local assets or income streams outside of your annuity, it can also make sense to have more offshore exposure. 

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Currency risk: Friend or foe? 

Currency risk is the potential loss which may occur when exchange rates move against you, in other words, when the value of one currency changes relative to another. Currency fluctuations can have the effect of amplifying short-term market volatility. The value of your investment may be influenced not only by the fund’s performance but also by movements in exchange rates.    

For example, if an offshore fund performs poorly and the rand depreciates at the same time, the combined effect can increase the capital loss that you experience. But including offshore exposure in your portfolio generally serves as an effective rand hedge, serving as a great layer of protection against sudden weakness in the rand if the offshore fund performs well.   

At the same time, currency movements can reduce returns. For example, if the rand strengthens, the value of your offshore investments may be worth less once converted back to rands, even if they performed well in their local markets. This is why currency risk is often seen as a double-edged sword. Currency movements can shield you when the rand weakens, but it might limit your gains when the rand strengthens. 

What to consider when deciding on offshore allocation  

When it comes to the appropriate offshore allocation for an investor, there is no one-size-fits-all strategy. Instead, it’s an individual-specific process that varies from person to person.   If you’re in a situation where you need to consider the appropriate offshore allocation, you would start the process by looking at your investor profile. Here, you would want to consider the following factors:  

  • Risk tolerance levels: In other words, are you a more risk-tolerant investor who feels comfortable with some market volatility over the short term? Or are you a more risk-averse investor who prefers to avoid market volatility where possible? 
  • Retirement timelines: Do you require your living annuity to provide for you for a longer time period or a shorter time period? Are you looking at 20 years or 40-plus years? 
  • Future expenses: Will you be residing in South Africa for your retirement years? Or will you be relocating offshore? Or perhaps you are considering a combination of both residing locally and offshore, incorporating more of a ‘swallow’ lifestyle? 
  • Lifestyle: Will you be travelling overseas? Do you need to make lots of international purchases? Or will you mainly be focused on spending your money in South Africa? 

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If you’re a more conservative investor, you may prefer to include around 30% to 40% offshore exposure. If you are an investor concerned about local market instability and rand depreciation, you may then wish to include a higher proportion invested offshore. In this case, you may look at around 50% to 70% of your portfolio to be invested offshore.   

At the end of the day, your personal circumstances, like your timelines, place of residence, expenses, other investments, and more, will determine how to balance your portfolio. Of course, as an investor, you want to ensure that you remain focused on your long-term goals and balance your living annuity accordingly.   

10X’s approach to global diversification  

10X follows an index tracking investment strategy alongside a more active approach to asset allocation. With this approach, a benchmark index, such as the S&P 500, is mimicked in an effort to generate the same returns as the index. This approach is generally more cost-effective, as there is less research, analysis, and buying and trading activities involved. The focus is on consistent long-term returns. 10X follows a ‘buy to hold’ methodology, balancing asset allocation with a minimum of a 5 year time horizon. More on our investment strategy can be found here.  

As data from the SPIVA Scorecards suggests, index tracking may outperform active management most of the time, especially over the longer term. According to the latest SPIVA South Africa Scorecard (as of 31 December 2024), 60.84% of South African actively managed equity funds underperformed the S&P South Africa DSW Capped Index over the ten-year period ending 31 December 2024.  

Active management refers to a strategy of trying to pick winning stocks and perhaps, also time the market. This approach involves a lot of research and buying and selling, which leads to more costs. As an investor, you often bear the brunt of these costs.  

A diversified asset allocation strategy means spreading investments across different asset classes and geographical regions, with the goal of managing both risk and growth. 10X offers a number of well-diversified funds which may include offshore exposure, as well as fully offshore fund options, as we allow for 100% of your living annuity to be invested offshore. Oftentimes, other service providers fail to offer this due to internal limits.  

Final thoughts on offshore vs local allocation in living annuities  

Offshore investing offers a great opportunity for you to diversify your portfolio, protect against any local market instability, as well as pursue any potential market gains on offer in the international market. The way that you balance your offshore and local investments should depend on your personal circumstances and investor profile. While some might prefer to have a living annuity invested 100% offshore, others may be more suited to a combination of both. 

At 10X, we simplify your retirement with low fees, a superior track record and a straightforward investment approach. To find out more about the 10X living annuity, get in touch today or visit our website.  

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