Financial diversification and your SMSF

Is your SMSF diversified adequately and why it is important?

With interest rates at record lows, the share market unpredictability and all round economic uncertainty, now more than ever it is important to ensure your SMSF investments are meeting your investment goals.

The benefits of a well-diversified portfolio are numerous but the key ones that SMSF trustees should focus on are the benefits of mitigating volatility and short-term downside investment risks, preserving capital and the long-run benefits of higher overall returns. By spreading an SMSF’s investments across different asset classes and markets offering different risks and returns, SMSFs can better position themselves for a secure retirement.

However, 82% of SMSF trustees believe that diversification is important but in practice many do not achieve it. This is because it is not a primary goal for SMSF trustees, and they believe they have a lack of funds to implement it.

Furthermore, 36% of SMSF trustees say they have made a significant (10%) asset allocation change to their SMSF over the last 12 months. This demonstrates that SMSFs may not be actively restructuring their portfolio on an annual basis to respond to changing market conditions.

Another clear problem regarding diversification is the amount of SMSFs with half or more of their SMSF invested in a single investment. SMSF trustees say they primarily invest in shares to achieve diversification in their SMSF, while just a quarter say they invest in at least four asset classes to achieve this.

So what can you do to diversify your SMSF?

Some of the steps you, can take to diversify your retirement savings and control your investments in a disciplined and planned way include:

    • Ensuring there is a clear and demonstrable retirement purposes in the choices you make.
    • Ensuring you have an investment objective and a strategy to achieve that objective in place.
    • Reviewing your portfolio and assessing it against the objectives you have set as often as you feel is necessary.
    • Minimising concentration to any one asset class, such as fixed interest or property.
    • Ensuring your Australian share portfolio is sufficiently diversified.
    • Considering the benefits of geographic diversification – this could include international shares to a property investment in a different state or city.
    • Ensuring your cash allocation is appropriate.
    • Considering the benefits of exchange traded funds, listed investment companies and other digital investment platforms that allow low cost access to different markets.

Given the importance of having an appropriately diversified portfolio and its impacts on quality of life in retirement trustees ought to consider professional assistance in managing this important aspect of an SMSF. We can assist by recommending a financial adviser to manage an investment portfolio through to preparing the documentation to maintain your investment strategy.

How can we help?

If you need assistance with diversification with your fund, please feel free to give us a call on 1300 392 544 or get in touch online to arrange a time to meet so that we can discuss your particular circumstances in more detail.

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