Economic conditions threaten cash-heavy SMSFs
Self-managed superannuation funds (SMSFs) that continue to put large sums in cash should expect to see returns watered down by tax and inflation, an asset manager has warned.
Despite falling interest rates and rising inflation, Australian SMSFs still invested almost a third of funds - $154.1 billion - in cash and term deposits in the September quarter of last year, according to Australian Taxation Office (ATO) data.
Arian Neiron, managing director of ETF asset manager Market Vectors Australia, said it was time to consider diversifying.
"The Australian market is deeply concentrated, with the top five securities accounting for almost 40 per cent of the market. This concentration is also reflected in SMSF portfolios," he said.
"Historically, SMSFs have invested in only a small number of shares, favouring large-cap companies. The result is increased concentration risk through lack of diversification. This approach can lead to a risk profile that is actually higher than many trustees realise."
Neiron said an ETF could reduce equity risk while offering SMSFs access to several markets and companies.
"As well as term deposit investments, SMSFs have a wide range of listed investment options, such as ETFs, which can be used as a long-term growth strategy or to gain short-to-medium term equity market exposure while deciding where to put funds longer term," Neiron said.
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