A report out from the ATO on Self Managed Super Funds (SMSF’s) asset allocation reports a large exposure to broadly two asset classes namely Australian Listed Shares and Cash/Term Deposits with a smaller exposure to Non Residential Property and next to no exposure to International Shares. Whilst it could be argued Cash and Term Deposits could be reserves allocated towards say a deposit for Business Real Property or another investment category what is glaringly obvious is the lack of global share exposure which is commonly prevalent in SMSF’s whatever the balance is as you will see directly below.
|SMSFs with $1mil to $2 mil in assets||SMSFs with $500k to $1 mil in assets||SMSFs with $50k to $100k in assets|
|Australian Listed Shares||30.6%||28.9%||23.9%|
|Cash and Term Deposits||31.7%||33.7%||52.1%|
Source: ATO SMSF Statistical Report June 2014
Unfortunately for those with no exposure to global shares Vanguard’s 2015 Index Chart below shows International Shares have out performed Australian Shares in 4 out of the last 5 years.
|Year||Australian Shares||International Shares||Australian Listed Property|
Source: Vanguard 2015 Index Chart
Also Australian Listed Property from the same table above also shows double digit returns in the last 3 years. All asset classes and sectors do not necessarily move in tandem with the share market and as such would “iron out” overall volatility in your portfolio if included.
As well as missing out on potential higher returns, being overweight in Australian share exposure is that it is likely to significantly increase the level of volatility that Australian investors are experiencing. This can be daunting for many investors and may even cause them to exit the market and realise significant losses. Furthermore it may cause significant problems if you are about to retire and depend on your funds as a source of income. I.e. just when you come to access some of the funds, they may have fallen again you are forced to effectively lock in the loss when selling them down.
If you have felt that your shares portfolio has suffered more volatility in the last year than you are comfortable with, diversification could be the key to ensuring this does not happen again or atleast minimise the downside.
For SMSF’s there are still ways and means to gain exposure to a diverse range of global funds and/or property based funds, directly on the ASX, in the form of Exchange Traded Funds (ETFs) and Listed Investment Companies (LICs).
If you limit yourself to Australian shares you increase your potential volatility and as such we certainly ask you to strongly consider whether these investments are diverse enough, so as to avoid hitting retirement at a time when the domestic share market may have experienced recent losses.
If you need more information or help to implement this strategy for your wealth protection,
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