Too much cash in SMSFs

Cash investments now represent 26 per cent of all self-managed superannuation funds (SMSF) assets and could harm wealth creation over the long-term, according to OnMarket BookBuilds (OB).

The fintech found in the December quarter 2015 SMSF cash and term deposits rose to a high of $155.4 billion, up from $154.5 billion in the previous quarter.

Citing the Australian Taxation Office (ATO), OB said SMSF net assets surged to $593.6 billion during the quarter, up 2.7 per cent from the previous quarter.

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OB chief executive, Ben Bucknell, said too many SMSFs were falling into the trap of investing into assets which they know rather than into a more diverse range of equities, which over the long-term would help to grow wealth at a much faster rate than cash.

"To put total SMSF assets into perspective, an average of $40 billion of new equity is issued by Australian companies every year via IPOs and capital raisings conducted by listed companies. That means that just seven per cent of SMSF balances could fund Australian companies' entire annual new equity capital requirements," he said.

"Or put another way, today's SMSFs could fund the equity capital requirements of ASX listed companies for the next 14.8 years.

"Like investors everywhere, Australian investors have a home bias. But added to this is a strong bias towards bank and mining shares. A greater exposure to a more varied group of companies, including those listing on the ASX and high-growth small-cap companies, would help to build wealth more effectively over time."

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Did you ever think that maybe SMSF Trustees and their advisers were being smart in increasing cash levels over last 9 months. Many have also been using ETFs and ETFMs like Magellan Global Equities to get overseas exposure at last and reducing the exposure and bias to the top 20 Aussie stocks. That has to be a good move for added diversification long term. Sometimes cash is a good option as long as you are looking for longer term opportunities. That's the beauty of SMSFs in that you can tilt portfolios easily with ease.

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