As investors move away from cash and into asset classes such as equities, there is a risk they will compromise the diversification of their portfolios, according to Jonathan Philpot, wealth management partner at HLB Mann Judd Sydney.
SMSF investors shouldn’t discard term deposits based on yield decreases, Mr Philpot told SMSFAdviser, adding that the current returns are not “terrible”.
“As an investment in a SMSF, a term deposit is probably one of the best type of secure investments you can still have,” he said. “I think they’ve still got an important role to play in [an SMSF] portfolio.”
“I’m raising a cautionary note with that while it’s fine to be chasing a better income you’ve got to be aware of what the underlying risk is that you’re taking yourself on, there’s no way a bank share has the same risk as a term deposit.”
Mr Philpot said that adjusting a portfolio that is primarily based on cash and term deposits is “a good idea,” however moving into 100 per cent high yielding shares will sharply increase the risk of capital losses and exposure to volatility.
“While share market returns have been far greater than term deposit returns over the past 12 months, investors also need to keep in mind that what they have in superannuation and other retirement savings are long-term investment,” Mr Philpot said.
“Chasing last year’s best performing, or today’s hot asset class, is never a sensible investment strategy.”
Investors seeking growth should maintain some exposure to defensive asset classes, Mr Philpot said, adding retirees should keep approximately three to four years’ worth of pension payments in cash investments such as term deposits “as a buffer against any future downturn.”
The only thing that is safe and guaranteed about cash and term deposits is what the last 70 years of monetary history has taught us – they are guaranteed to lose real value as the Reserve Bank and the Commonwealth Government debauch the currency while the ABS plays with CPI so that it conceals the extent of the debauchery.
Legal tender is only a medium of exchange – it is no longer a store of value (but that is not to say safety is to be found in bubbling real estate prices).
Dr Terry Dwyer
Dwyer Lawyers
http://www.dwyerlawyers.com.au
It seems to me this is another rhetorical article from a typical financial adviser tune.. again totally disregarding the prospect of well geared property investment as part of a strengthened long term strategy.
Investment prospect that is a lot safer then investing in shares and yet can offer both a very safe cashflow environment and a leveraged and stable growth outlook