Diversifying an SMSF investment portfolio

3 min read

Bryan Ashenden, Head of Financial Literacy & Advocacy, BT Financial Group
Published in The Australian 4 April 2017.

My SMSF is heavily concentrated in Australian shares, property and cash. Should I consider other investments?

This kind of concentration is common, with ATO statistics showing Australian shares, cash and direct property make up a majority of all SMSF investments1. Australia’s love of property is well-documented, and cash is often favoured by more conservative investors or those with shorter investment timeframes. People also tend to invest in what they know, and Australian shares allow SMSF trustees to invest their retirement savings in familiar companies.

Nevertheless, as an SMSF trustee you need to understand that asset classes behave differently at different times – some asset classes will rise in value while others fall. If your SMSF is concentrated in only certain assets or has a domestic bias with limited exposure to international markets, it risks being over-exposed if these areas of the market fall in value.

Diversifying across a range of investments is a way of spreading risk and can help SMSF trustees to smooth out overall returns in their fund. This could be achieved by spreading investments across different asset classes including cash, fixed interest, shares, and property. Another way to diversify is across different countries or regions. For example, you could gain access to international shares and fixed interest through exchange traded funds (ETFs) listed on the ASX.

If you are seeking a combination of diversification and professional expertise, you may like to consider managed investments. These can invest in a variety of asset classes, including cash, fixed interest, property and shares, with the option to focus on a specific asset class, particular industry, or even a specific country. Managed investments can provide a level of diversification well beyond the reach of most direct investors. An Australian share fund, for example, could hold shares in dozens of Australian companies and a property fund could hold major assets like a commercial office block.

Instead of you having to select which assets to buy and sell and when to do it, with a managed investment these decisions are made by professional investment managers. You need to be aware however that along with the risks associated with individual asset classes, managed investments carry the additional risk that the professional investment managers chosen may not perform as expected.

Your SMSF’s investment requirements will change over time as members’ ages, priorities, goals and risk appetites change, which means asset allocation should be reviewed at least annually. SMSF investment strategies should also be reviewed if there are any changes to the members of the fund, including the addition of a new member, the death or departure of an existing member, if a member’s circumstances change, or if a member retires.

The precise mix of investments that is right for you (or any) SMSF will depend on individual factors, including SMSF members’ ages, lifestyle, attitude to risk and personal goals. Before making any investments decisions, you should ensure you understand the benefits and risks of each type of investment you are considering, checking they match your (and other members’) goals and risk tolerance and that all tax considerations have been accounted for.

1. Australian Taxation Office, Self-Managed Super Fund Statistical Report – September 2016

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This information is current as at 04/04/2017.

This information is general in nature and does not take into account your personal needs, objectives or circumstances and therefore, before acting on it, you should consider whether it is appropriate for you.

BT Portfolio Services Ltd ABN 73 095 055 208 AFSL 233715 (BTPS) is the operator of BT Panorama (the investor directed portfolio service). BT Funds Management Limited ABN 63 002 916 458 AFSL 233724 (BTFM) is the issuer of BT Cash. Westpac Financial Services Ltd ABN 20 000 241 127 AFSL 233716 (WFSL) is the issuer of BT Managed Portfolios (together, the Panorama Products). An Investor Guide is available for BT Panorama and a PDS is available for BT Cash and BT Managed Portfolios and can be obtained by calling 1300 554 267, or visiting BT SMSF. You should obtain and consider the relevant disclosure documents before deciding whether to acquire, continue to hold or dispose of interests in the Panorama Products. In addition, BTPS is also the provider of the SMSF Establishment Service and the SMSF Administration Service. The Guide and Terms and Conditions for each of these services are available by contacting BTPS.

BT Portfolio Services cannot give tax advice. Any tax considerations outlined in this article are general statements, based on an interpretation of the current tax law, and do not constitute tax advice. The tax implications of BT SMSF can impact individual situations differently and you should seek specific tax advice from a registered tax agent or registered tax (financial) adviser.