Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 196

SMSF investments do not match objectives

Most individual investors are facing the same dilemma at the moment. They don’t want to sit in cash or deposits earning little in real returns (the cash rate and inflation are about the same), share markets look fully valued (the All Ords closed at its highest level since May 2015 on the day of writing, and the Dow has seen many all-time highs this year) and even that darling, residential property, is looking skittish. Yet to build retirement savings at a decent long-term target return of say 8%, risks need to be taken.

Unrealistic return expectations in current market

It’s one reason why recent research by AMP Capital into the investments of 800 SMSF trustees shows a disconnect between growth aspirations and actual asset allocations, and the difference is stark. The annual ‘Black Sky Report’ shows SMSF trustees expect a 10.9% return on their portfolio in 2017, made up of 6% capital growth and 4.9% income. Yet about 55% have moved to a more defensive asset allocation in the last year as they worry about market levels. Only 18% have increased their allocation to growth categories.

A typical balanced institutional portfolio will have an asset allocation of about 30% cash and fixed interest, 35% Australian shares, 20% global shares, 10% property and 5% others (such as infrastructure, hedge funds or private equity). However, although most SMSF trustees know they need a diversified portfolio, over half their fund balances are invested in only one investment type outside of managed funds.

How do SMSF trustees make decisions?

About three-quarters of trustees report they do not use any tools to assist with portfolio construction, which leaves plenty of scope for financial advice to assist with an investment strategy. Trustees also rely to a surprising amount on their own research to make their decisions (and another study shows Cuffelinks is prominent among investment newsletters).

Challenges facing SMSF trustees

The respondents identified three main areas of concern for the next 12 months:

  1. Market volatility (18%)
  2. Investment selection (11%)
  3. Regulatory changes (10%).

Although most trustees rely primarily on their own research, most want to learn more and nearly 60% are willing to use a financial adviser. About 37% of trustees nominated ‘retirement strategies’ as the area requiring most assistance.

There is an increasing recognition of new opportunities in active ETFs and unlisted managed funds which diversify away from the usual ASX index exposures. AMP Capital’s Tim Keegan noted:

“If trustees continue to be exposed to significant portfolio concentration risk and remain in more defensive assets without seeking financial advice, they may struggle to achieve their retirement goals. We can see through the report that their interest and understanding in ETFs have increased, but there is definitely a demand for more education ... I strongly believe that is going to be an ongoing theme because the Australian market is concentrated on banks, miners and telcos, so there’s a very limited range of industry sectors and markets to be exposed to.”

The SMSF trustees surveyed by AMP Capital are higher users of managed funds than most trustees, due to the more regular use of advisers, and they see the benefits of ETFs as:

  1. Ease of diversification 45%)
  2. Access to out-of-reach investments (41%)
  3. International diversification (36%).

Why SMSF trustees set up their own funds

The research also confirms the widely-held views on why SMSFs are being set up by the thousand each month:

  1. More control over investment (56%)
  2. Choose specific shares to invest in (32%)
  3. Save money on fees (31%)

On a positive note, the trustees are aiming for an average of about $2 million in investible assets before they retire, and 72% say they are on track to achieve this goal.

 

The 2017 Black Sky Report can be downloaded here. AMP Capital is a sponsor of Cuffelinks.

RELATED ARTICLES

Clime time: Asset allocation decisions for SMSFs

How will SMSF trustees handle the new super tax proposal?

SMSF trustees who question their capacity and look for options

banner

Most viewed in recent weeks

Vale Graham Hand

It’s with heavy hearts that we announce Firstlinks’ co-founder and former Managing Editor, Graham Hand, has died aged 66. Graham was a legendary figure in the finance industry and here are three tributes to him.

The nuts and bolts of family trusts

There are well over 800,000 family trusts in Australia, controlling more than $3 trillion of assets. Here's a guide on whether a family trust may have a place in your individual investment strategy.

Welcome to Firstlinks Edition 583 with weekend update

Investing guru Howard Marks says he had two epiphanies while visiting Australia recently: the two major asset classes aren’t what you think they are, and one key decision matters above all else when building portfolios.

  • 24 October 2024

Warren Buffett is preparing for a bear market. Should you?

Berkshire Hathaway’s third quarter earnings update reveals Buffett is selling stocks and building record cash reserves. Here’s a look at his track record in calling market tops and whether you should follow his lead and dial down risk.

Preserving wealth through generations is hard

How have so many wealthy families through history managed to squander their fortunes? This looks at the lessons from these families and offers several solutions to making and keeping money over the long-term.

A big win for bank customers against scammers

A recent ruling from The Australian Financial Complaints Authority may herald a new era for financial scams. For the first time, a bank is being forced to reimburse a customer for the amount they were scammed.

Latest Updates

Shares

Looking beyond banks for dividend income

The Big Four banks have had an extraordinary run and it’s left income investors with a conundrum: to stick with them even though they now offer relatively low dividend yields and limited growth prospects or to look elsewhere.

Exchange traded products

AFIC on its record discount, passive investing and pricey stocks

A triple headwind has seen Australia's biggest LIC swing to a 10% discount and scuppered its relative performance. Management was bullish in an interview with Firstlinks, but is the discount ever likely to close?

Superannuation

Hidden fees are a super problem

Most Australians don’t realise they are being charged up to six different types of fees on their superannuation. These fees can be opaque and hard to compare across different funds and investment options.

Shares

ASX large cap outlook for 2025

Economic growth in Australia looks to have bottomed, which means it makes sense to selectively add to cyclical exposures on the ASX in addition to key thematics like decarbonisation and technological change.

Property

Taking advantage of the property cycle

Understanding the property cycle can be a useful tool to make informed decisions and stay focused on long-term goals. This looks at where we are in the commercial property cycle and the potential opportunities for investors.

Investment strategies

Is this bedrock of financial theory a mirage?

The concept of an 'equity risk premium' has driven asset allocation decisions for decades. A revamped study suggests it was a relatively short-lived phenomenon rather than the mainstay many thought.

Vale Graham Hand

It’s with heavy hearts that we announce Firstlinks’ co-founder and former Managing Editor, Graham Hand, has died aged 66. Graham was a legendary figure in the finance industry and here are three tributes to him.

Sponsors

Alliances

© 2024 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.