Self-managed investors are unlikely to embrace diversification until they have been significantly “burnt” by a financial market collapse, says Aberdeen Asset Management.
Speaking to SMSF Adviser, Aberdeen Asset Management global head of investment solutions Archie Struthers noted that people are typically “horrible” at timing markets.
Australians would be much better off using a multi-asset fund for the ‘core’ of their retirement savings portfolio, and then tinkering around the edges, Mr Struthers said.
“[But] people only really embrace this once they’ve been burnt,” he said.
“Behaviour is driven by experience. What will be interesting now is how things work out for people over the next few years,” Mr Struthers said.
What may have been ‘tailwinds’ for the Australian financial and resources sectors may turn into ‘headwinds’, he said.
Aberdeen’s managing director in Australia, Brett Jollie, said the typical asset allocation of an SMSF was “inappropriate for anyone looking for a diversified portfolio”.
“There needs to be greater diversification [in SMSFs], not only to enhance returns but to decrease risk,” Mr Jollie said.
“Your risk/return profile is significantly skewed when you have that asset allocation. Especially when you look at the Australian equity market.
“You’ve got a very concentrated portfolio potentially of Australian equity stocks which is going to take a big hit if banks take a downward tumble,” Mr Jollie said.
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