Do You Consider Your SMSF to Be Diversified?
With $720 Billion invested in SMSF’s, the Vanguard/Investment Trends SMSF survey has revealed that more than 50% of these Self-Managed Super Funds are currently managed by retirees.
The Australian super system can be characterized by its unique Self-Directed super sector. Furthermore, despite the recent decline of new funds being established the value of assets in this segment has seen an increase of more than $50 Billion.
Vanguard/Investment trend research approached SMSF investors with questions surrounding the lack of diversification in portfolios, in an attempt to shed light on this ever present issue within the SMSF sector.
“portfolio data showed 36 per cent was invested in direct shares, 23 per cent in cash, 22 per cent in managed investments (including ETFs and 12 per cent in direct property).”
The results from the data showed that 82% of trustees strongly agreed with diversification across investment types within their portfolios. However, only 54% had described their portfolios as well diversified.
When continuing to question these trustees, a majority considered a portfolio of 20 shares to be well diversified. This is an unremarkable takeaway when considering that on average SMSF portfolio’s hold approximately 17 shares.
Unfortunately, 20 share portfolios fail to meet professional standards of diversification. Furthermore, this would be categorised as a high risk portfolio due to concentration risk – to which most trustees would be surprised.
An Australian share portfolio of that size would in most cases contain banks and mining companies which are the dominating sectors in the Australian market, exposing them to greater risk of underperformance when those sectors are negatively impacted.
An encouraging but recent turn of events has been the increasing use of managed funds and inclination toward overseas investments, which aid in alleviating some concentration risk.
Ultimately, trustees need to consider whether their current portfolios are diversified enough to sustain an income whilst in ‘pension mode’ or whether they need to diversify their portfolios further.
Disclaimer: HarbourSide Capital AFSR 448907. Information or advice on this website is general in nature and has been prepared without accounting for your objectives, financial situation or needs.