SMSFs told asset allocation 'out of line'

The allocations made by SMSF trustees to growth assets such as shares and property, in many cases, do not align with their risk tolerance, according to investor risk profiler FinaMetrica.

FinaMetrica chief executive Paul Resnik said that based on the latest statistics from the ATO, SMSFs had one third of all their assets, or $187.1 billion, allocated to Australian shares in the June 2015 quarter and a total of $87.9 billion invested in Australian property investments.

Mr Resnik said these asset numbers “highlight a risky allocation”, dominated by growth assets such as local property and shares.

“[These] allocations [are] potentially out of line with the risk tolerance of most SMSF trustees,” he said.

According to Mr Resnik, SMSFs need to achieve greater asset diversity with their portfolios and greater awareness of their ability to tolerate investment risk.

“While one third of SMSFs are invested in Australian shares, SMSFs invested just $1.8 billion in international shares in the June 2015 quarter. While this figure may underrepresent the true amount, SMSFs’ offshore investments are still minor compared to their home investments,” he said.

SMSF practitioners should encourage their SMSF clients to consider how they can reduce their Australian equities risk and rebalance their portfolios to incorporate greater offshore diversification and an overall lesser exposure to equities, he said.

“If the Australian dollar continues to fall, investors could see even greater gains from holding unhedged offshore investments, whether bonds, shares or alternative assets,” he said.

Mr Resnik was also critical of the current allocations to cash investments by trustees.

“SMSFs are still piling money into cash investments despite historically low returns – this is a temptation that needs to be resisted for all investors as share markets fall,” he said.

“Over the long term, cash does not protect against the ravaging effects of inflation, [nor does it] build wealth.”

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