In 2024, the JSE All Share Index delivered a modest return of 8.2%, trailing global indices like the S&P 500, which gained 15.4% in USD terms. Meanwhile, the South African Rand depreciated by 7% against the US dollar, eroding the real returns of investors heavily concentrated in local markets. For many South African investors, this volatility is a stark reminder of a critical issue: over-reliance on a single market or asset class exposes portfolios to avoidable risks.
The problem is widespread. Retail investors in South Africa often overweight local equities, property, or cash equivalents, leaving their financial futures vulnerable to domestic economic shocks, currency fluctuations, and inflation. Without a diversified approach, wealth preservation and growth become increasingly difficult in an unpredictable environment.
This blog aims to demystify investment risk and provide practical, actionable strategies for building a diversified portfolio using both local and global options. The thesis is clear: A well-diversified portfolio is essential for long-term financial security in South Africa’s economically volatile environment. By spreading investments across asset classes, geographies, and currencies, investors can mitigate risks while positioning themselves for sustainable returns.
Understanding Investment Risk
Investment risk is the uncertainty surrounding the returns of an investment. It’s not just about losing money—it’s about the variability of returns and the potential for outcomes to deviate from expectations. For South African investors, several types of risk are particularly relevant:
- Market Risk: The possibility of losses due to broad market declines, such as a JSE correction triggered by global recession fears.
- Currency Risk: The Rand’s volatility can erode returns on local investments when measured in global terms. In 2024, the Rand weakened significantly, reducing purchasing power for imported goods and offshore investments.
- Political Risk: South Africa’s political landscape, including policy shifts or governance challenges, can impact markets. For example, energy sector reforms have influenced utility stocks.
- Inflation Risk: According to the South African Reserve Bank, inflation averaged 5.3% in 2024, outpacing returns on cash and low-yield bonds, eroding real wealth.
Not diversifying is itself a form of risk—concentration risk. By putting too much capital into one asset class, sector, or geography, investors amplify their exposure to adverse events. Recognizing these potential pitfalls is essential to constructing a well-balanced portfolio.
The South African Investment Landscape
South African retail investors tend to favor familiar assets: local equities, property, and cash. A 2023 survey by 10X Investments found that 65% of retail portfolios are concentrated in JSE-listed stocks or property, with only 5% of investors holding offshore assets. This local bias stems from familiarity, limited knowledge of global markets, and regulatory constraints like exchange control limits.
Current Trends
- High Concentration: Many investors overweight JSE heavyweights like Naspers or mining stocks, which are sensitive to global commodity cycles.
- Limited Global Exposure: Offshore investing is growing but remains underutilized due to perceived complexity or costs.
- Tax-Advantaged Vehicles: Tax-free savings accounts (TFSAs) and retirement annuities (RAs) are popular but often invested conservatively or locally. Regulation 28, which governs pension funds, caps offshore exposure at 45%, influencing portfolio construction.
Comparison: Local vs. Diversified Portfolios
Consider the average South African retail investor’s portfolio: 60% local equities (e.g., Ashburton Top 40 ETF), 30% property (direct or via REITs), and 10% cash. This portfolio is heavily exposed to JSE volatility and Rand depreciation. In contrast, a diversified portfolio might allocate 30% to local equities, 20% to local bonds, 20% to property, and 30% to global ETFs (e.g., Satrix MSCI World ETF). The latter reduces reliance on a single market and currency, offering a buffer against local downturns.
Why Diversification Matters
Diversification involves allocating your investments across various asset types, industries, and regions to minimize exposure to risk. Its logic lies in the low or negative correlation between assets. For example, when SA equities decline due to a mining sector slump, USD-denominated global ETFs may rise, offsetting losses. Similarly, bonds often perform well when equities falter, providing stability.
Currency Hedge
The Rand’s long-term depreciation—averaging 5-7% annually against the USD over the past decade—makes offshore exposure a critical hedge. Investing in USD- or GBP-denominated assets protects against currency erosion, preserving purchasing power for travel, education, or imported goods.
Case Study: Local vs. Diversified Portfolio
Let’s compare two hypothetical portfolios over the past five years (2019–2024):
- Local-Only Portfolio: 70% Ashburton Top 40 ETF, 20% STANLIB Property ETF, 10% cash.
- Diversified Portfolio: 30% Ashburton Top 40 ETF, 20% Satrix MSCI World ETF, 20% Allan Gray Bond Fund, 20% STANLIB Property ETF, 10% NewGold ETF (commodities).
Using historical data:
- The Local-Only Portfolio returned an annualized 6.8% but with high volatility (standard deviation of 18%), driven by JSE swings and Rand weakness.
- The Diversified Portfolio returned 7.4% annually with lower volatility (standard deviation of 12%), benefiting from global equity gains and bond stability.
The diversified portfolio not only outperformed but also reduced risk, proving that diversification can enhance risk-adjusted returns.
How to Diversify as a South African Investor
Building a diversified portfolio requires a structured approach. Below is a step-by-step guide tailored to South African investors.
Step 1: Assess Your Current Risk Exposure
Review your portfolio to identify concentration. Are you overweight in local equities or property? Use tools like EasyEquities’ portfolio analytics or consult a financial advisor to quantify your risk.
Step 2: Access Low-Cost Platforms
Platforms like EasyEquities, Sygnia, and SatrixNOW offer affordable access to local and global markets. For example:
- EasyEquities: Low fees (0.25% per trade) and fractional share investing.
- SatrixNOW: No minimums, ideal for ETF investing.
- Sygnia: Competitive fees for offshore feeder funds.
Step 3: Allocate Across Asset Classes
Construct a portfolio with a mix of:
- Local Equities: ETFs like the Satrix 40 ETF provide broad JSE exposure.
- Global Equities: Satrix MSCI World ETF or Sygnia Itrix MSCI USA ETF for developed market exposure.
- Bonds: RSA Retail Bonds (fixed rates, government-backed) or the Allan Gray Bond Fund for stability.
- Property: REITs like Growthpoint or STANLIB Property ETF.
- Commodities: NewGold ETF for gold exposure, a hedge against inflation and currency risk.
Step 4: Leverage Offshore Feeder Funds and ETFs
Feeder funds (e.g., Sygnia Itrix Euro Stoxx 50) and ETFs allow offshore exposure without navigating exchange controls. Allocate 20-40% to global assets, depending on your risk tolerance and goals.
Step 5: Factor in Costs and Fees
Fees erode returns, so choose cost-effective options:
- ETFs: Annual fees range from 0.1% (Satrix) to 0.5% (Sygnia Itrix).
- Mutual Funds: Higher fees (1-2% annually) but offer active management.
- Platforms: EasyEquities charges 0.25% per trade, while traditional brokers may charge 1-2%.
Sample Diversified Portfolio
The table below outlines three diversified portfolio options with expected returns, risk levels, and fees (based on 2024 data).
| Portfolio | Allocation | Expected Annual Return | Risk Level (Std Dev) | Annual Fees |
| Conservative | 40% Bonds, 30% Local Equities, 20% Property, 10% Global ETFs | 6.5% | 8% | 0.4% |
| Balanced | 30% Local Equities, 30% Global ETFs, 20% Bonds, 15% Property, 5% Gold | 8.0% | 12% | 0.5% |
| Growth | 40% Global ETFs, 30% Local Equities, 15% Property, 10% Gold, 5% Bonds | 9.5% | 15% | 0.6% |
Note: Returns and risk are estimates based on historical performance and market conditions as of 2024.
Common Mistakes and How to Avoid Them
Diversification sounds simple, but pitfalls abound. Here are common mistakes and how to sidestep them:
- Overexposure to One Asset or Sector: Avoid overloading on JSE heavyweights like mining or tech (e.g., Naspers). Use broad-market ETFs to spread risk.
- Chasing Returns: Investing in last year’s top performer (e.g., crypto in 2021) often leads to losses. Focus on risk-adjusted returns aligned with your goals.
- Ignoring Currency Diversification: Rand depreciation can wipe out gains. Allocate to USD- or GBP-denominated assets for protection.
- Underestimating Fees and Taxes: High fees (e.g., 2% mutual fund fees) and taxes like capital gains tax (CGT) or dividend withholding tax (15%) reduce returns. Opt for low-cost ETFs and use TFSAs to minimize tax.
Diversification is more than spreading money across assets—it’s a disciplined strategy to manage risk and capitalize on opportunities in South Africa’s volatile economic landscape. By allocating across local and global equities, bonds, property, and commodities, investors can reduce volatility, hedge against currency depreciation, and achieve sustainable growth.
To get started, revisit your portfolio quarterly to assess risk exposure, rebalance annually to maintain your target allocation, and aim for exposure across currencies, industries, and asset types. As Sygnia’s CEO, Magda Wierzycka, aptly stated, “The biggest mistake investors make is assuming they can predict the future. Diversification is your insurance against being wrong.”
Take control of your financial future today. Open an account on a low-cost platform like EasyEquities, explore ETFs like the Satrix MSCI World or NewGold, and build a portfolio that withstands South Africa’s economic storms while capturing global growth.
