|Industry Problem||10X Solution|
The industry provides hundreds of investment choices without a preferred solution. Choice adds cost, complexity and the need for advice.
10X has one solution. You are automatically invested in an optimal portfolio based upon your age.
The investment strategy is tailored to each individual investor
10X invests your money according to your age and investment time horizon. 10X runs six portfolios with time horizons ranging from less than one year (10X Defensive) to more than five years (10X High Equity). Each portfolio has a different risk and return profile. In this way, the relevant investment advice and risk management you need is embedded in the solution.
However, you may opt out of this default path and choose to invest in either the 10X High Equity, 10X Medium Equity or the 10X Low Equity portfolio instead. This accommodates investors with a time horizon other than their retirement date, for example, people who plan to invest in a living annuity at retirement.
Asset mix: 10X Life-stage Portfolios
If your investment time horizon (eg the time until your stated retirement date) is five years or longer, you are allocated to a portfolio with the highest exposure to shares (77% including listed property). This portfolio will produce variable returns over the short term and may suffer losses of 20% or more over a one or two-year investment period. However, over the long term this portfolio is expected to produce the best returns, around 6% pa after inflation.
As your time horizon falls below 5 years, the focus shifts to capital preservation. You are then allocated to portfolios with lower share exposure and higher exposure to bonds and cash (defensive assets).
Range of SA real share annualized returns between 1900 and 2013
Source: Morningstar, 10X Investments
Shares (equities) provide the highest expected returns — around a 7% pa real return — but this return is uncertain and variable, especially over shorter investment periods. From a risk and return perspective, investors close to retirement should not have a high share weighting in their portfolio.
However, time transforms shares from high risk to low risk assets. As the time horizon increases, the risk of shares performing poorly decreases. Since 1900, the worst real return from shares over any 30 year investment period has been 4% pa. Although future investment returns are not guaranteed, there is no reason to believe SA shares will deliver materially different long-term real returns in future.
It has become common to allow employees to choose from a selection of investment managers and funds. In our opinion, this is not a desirable development. We see three problems:
- Few members exercise choice: typically 80% of employees end up in the default fund.
- Of the members who do exercise choice, few have the insight to select appropriate investment funds.
- Choice increases costs.
Instead of providing you with hundreds of choices, we provide you with a solution. We invest your money according to your time to retirement and investment time horizon.
However, if you plan to purchase a living annuity at retirement then your investment time horizon extends beyond your retirement date. In this instance, you may prefer to select your own portfolio. We therefore give you the option to opt out of the default solution into one of three portfolios: 10X High Equity, 10X Medium Equity and 10X Low Equity.