Hot Issues
spacer
SMSFs: Our 'hardest' jobs
spacer
ASIC issues alert over big gaps in SMSF trustee knowledge
spacer
Super savings gap for women stuck at 30%
spacer
Statistics for all Australians
spacer
Super set to play bigger retirement role
spacer
Why SMSFs want estate-planning advice
spacer
The power of financial role models
spacer
Assess your retirement financial resources
spacer
Cryptocurrency audits tipped to increase this EOFY
spacer
Time to check your risk exposure?
spacer
Some general interest stats on SMSFs
spacer
Check trust deed to protect super in estate planning
spacer
Survey reveals strong opposition to retirement system changes
spacer
Australia by numbers – Update
spacer
Federal Budget 2018 – Overview
spacer
Your Budget
spacer
4 components of our 2018 Federal Budget
spacer
Tools to help you manage your financial position are available on our site.
spacer
New rules capture SMSFs trading big with cryptocurrency
spacer
Common EOFY slip-ups flagged for SMSFs
spacer
Beware residency rules if moving overseas
spacer
99 pct of SMSFs missing global opportunities
spacer
How to plan for a better retirement
spacer
Australia by numbers - Update
spacer
Determine your retirement goals
spacer
ATO issues update on cryptocurrency compliance traps
spacer
How likely is a global trade war?
spacer
Gig economy spike prompts calls for super policy changes
Article archive
spacer
Quarter 2 April - June 2018
spacer
Quarter 1 January - March 2018
spacer
Quarter 4 October - December 2017
spacer
Quarter 3 July - September 2017
spacer
Quarter 2 April - June 2017
spacer
Quarter 1 January - March 2017
spacer
Quarter 4 October - December 2016
spacer
Quarter 3 July - September 2016
spacer
Quarter 2 April - June 2016
spacer
Quarter 1 January - March 2016
Quarter 4 of, 2016 archive
spacer
Investor habits: The good, the bad and the ugly
spacer
Keeping finances in the family
spacer
The inter-generational financial squeeze
spacer
Merry Christmas for 2016, a Happy New Year and a prosperous 2017.
spacer
ATO set to clamp down on range of super issues
spacer
SME retirement plans in jeopardy, research finds
spacer
SMSFs show restraint in hot residential market
spacer
Investment's building blocks - always worth reinforcing
spacer
Warnings issued on traps with CGT transitional rules
spacer
Meet SMSFs' early and late arrivals
spacer
Beware, the ATO is on the hunt for lifestyle assets
spacer
'Brexit means Brexit' means what?
spacer
SMSFs tipped to be hardest hit by pension changes
spacer
SMSF assets hit record, but funds still hoarding cash
spacer
Markets caution advised as economic bubbles loom
spacer
Stretching retirement income
spacer
Some financial terms explained
spacer
Market Update – September 2016
spacer
Checking in on our 2016 economic outlook - and looking ahead
spacer
Making a fairer and more sustainable Superannuation System
spacer
Going undercover
spacer
‘Winners and Losers’ from new super proposals
SMSF assets hit record, but funds still hoarding cash

 

A rise in the number of SMSFs and their assets to all-time highs in the June quarter 2016 highlights the appeal of do-it-yourself investing for many Australians.

       

 

But SMSFs are still piling a considerable amount of money into cash, which may reduce wealth-creation investment opportunities over the long term. 

A record 577,236 SMSFs existed in Australia as at 30 June 2016, up from 570,689 as at 31 March 2016, according to the latest ATO statistics. Those funds had over 1 million members in June; 1,087,841 to be exact.

SMSFs held $621.7 billion in assets as at 30 June 2016, up 2.7 per cent from $607.1 billion in the March quarter, according to the ATO data. Their assets accounted for around 30 per cent of the total superannuation asset pool of $2.1 trillion. So it’s a huge sector and growing rapidly.

While the trend is a positive sign for retirement savers, the ATO data also reveals the danger of going it entirely alone. Many SMSFs remain totally unguided in their investment decisions and appear to still have a huge amount of their assets invested in cash. 

SMSFs’ holdings of cash and term deposits rose to a record high of $158.9 billion in the June quarter, up from $157.3 billion in the March quarter. Cash investments now represent 26 per cent of total SMSF assets. 

The danger of having around one-quarter of your assets in cash is that inflation will inevitably eat away at some of your wealth, especially with interest rates at such low levels. Year-on-year the inflation rate edges up, typically between 2 per cent and 3 per cent, which means the value of your cash held in low-rate savings account is probably declining in real terms.

This is just one area where financial advice is so important. Engaging a financial adviser enables you to develop a better understanding of the impact of asset allocation and the importance of diversification strategies for long-term portfolio performance. Retaining too much in cash can endanger wealth creation over time. An adviser can help to create a strategy that balances returns while holding an optimum level of cash for unforeseen circumstances and economic cushioning.

Gaining exposure to growth assets and different asset classes for a key investment strategy is another area where SMSF trustees may benefit from advice. As it stands, SMSFs held almost one-third of their collective wealth in Australian shareholdings. 

In particular, SMSF shareholdings of Australian shares alone hit $187.8 billion in the June quarter. This was up 4.3 per cent from $180 billion in the March quarter, according to ATO data, and local shares made up around 30 per cent of all SMSF assets. Here just $3.3 billion was invested directly in offshore equities, or less than 1 per cent of total SMSF assets, according to the ATO. 

SMSFs have a great opportunity to explore offshore asset markets via the huge number of international managed funds or exchange-traded funds available, where there can be opportunities to diversify their portfolios across different asset classes and countries. In this situation financial advisers can potentially add a high level of value through exploring different international investment options and detailing expected risks and returns so SMSF trustees can make informed investment choices.

At the same time, SMSF Australian property holdings continue to grow as volatile share markets increase the appeal of bricks and mortar, which to some trustees can look increasingly stable. Investments by SMSFs in residential property totalled a record $24.4 billion as at 30 June 2016, up from $24 billion in the March quarter, according to the ATO data. Commercial property investments also jumped to $68.6 billion, up from $67.4 billion in the previous quarter. 

Given the higher yields on residential property (usually 3 per cent to 5 per cent) and commercial property (ranging from 7 per cent to 8 per cent), property is drawing increased numbers of SMSF investors. Moreover, over the long term, growth in the capital value of property can boost your wealth, with long-term returns rivalling those gained on shares. 

As the Australian population ages, and even more people begin to establish their own SMSF and chase better returns, we can expect even more money to flow into property given the reliable income streams and returns it can deliver over the long term.

While cash serves a key purpose in an SMSF, it’s important to strike the right balance of defensive and growth assets, depending on your situation and stage in life. Maintaining an SMSF balance that is skewed in the direction of excess cash may have a dramatic impact on creating an effective retirement savings strategy over the long term. Consider speaking to a financial adviser before you make any investment decisions for your SMSF. They can work with you to develop an investment mix for your circumstances and retirement goals so you can maximise the benefits of using an SMSF.

    

 

By Jason Dunn
12 Oct 2016
smsmagazine.com.au