Reflecting on ATO figures indicating that SMSFs invested $154.1 billion in cash and term deposits as at September 2013 – representing 29 per cent of all SMSF assets – Market Vectors managing director Arian Neiron said this allocation does not sufficiently mitigate inflation.
“SMSFs should consider diversifying their investments with ETFs in 2014 to build their wealth over time, rather than seeing the value of their cash eroded by tax and inflation,” Mr Neiron said.
“With interest rates falling to their lowest in years, and Australia’s inflation rate rising in recent times, the real returns on cash are falling. Australia’s inflation rate surprised the market in the final quarter of 2013, climbing to 2.7 per cent, up from 2.2 per cent in the December 2012 quarter.
The sharp fall in the Australian dollar is expected to keep upward pressure on inflation through 2014.
“As well as term deposit investments, SMSFs have a wide range of listed investment options, such as ETFs, which can be used as a long-term growth strategy or to gain short- to medium-term equity market exposure while deciding where to put funds longer term.”
Some trustees are only interested in cash, and that is why they have an SMSF. One client will never invest in shares because his father lost everything in the great depression and he has successfully added to his cash deposits every year and has had a positive return EVERY year (when compared with -18% or -12% or -24% with investments in some equity funds)for the 20+ year life of his fund. Criticising SMSF’s in this manner is counter productive for the fund managers because they will tune out and probably never tune back in.
It is not about becoming rich, it is about control and moving slowly without anyone earning their multi million dollar salaries out of their assets.
Of course funds should diversify, but many prefer to keep to what they know, not what they are told. They can fulfil their obligations properly because they understand what they are doing, not blindly following someone on the latest get rich quick scenario.