It’s about optimising your portfolio - August 2021

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Coronation Insights

Coronation Insights

By allocating money internationally, you reduce the level of risk associated with achieving a specific rate of expected return, as demonstrated in the riskreturn frontier in Figure 1.

Allocating-to-offshore-Assets.png

For retirement savers, the classic recommendation is to have a minimum international allocation of 20% to 30% through the cycle. These long-term investors require an annualised return of inflation plus 4% to 5% in rand terms with which they need to buy a basket of local goods and services. Figure 1 shows that at 0% international exposure, these investors get compensated with 1.01 units of return. But by having international exposure of 30%, their units of return increase to 1.27 (and at less risk than a portfolio without any international exposure).

Should you consider investing more than 30% offshore?

Investors who can justify a larger international allocation (more than 30%) include those who:

  • spend regularly in foreign currency;
  • need to consider offshore bequests because multiple generations live on different continents; and/or
  • do not need to draw a domestic income from their savings.