SMSFs advised to reduce property exposure
Data from the ATO suggests that SMSFs are taking on unnecessary risk, according to investor risk profiler FinaMetrica, with the property assets in some SMSFs as high as 30 per cent.
FinaMetrica co-founder and director Paul Resnik said while SMSF members are likely to be slightly more risk tolerant than most investors, data from the ATO suggests “they are taking on more risk than with which they are comfortable and more than they need to take financially”.
“For example, exposure to property assets could be as high as 30 per cent of average balances in SMSFs. That is peculiarly high, particularly as most Australians own one, two and sometimes three or more usually residential properties outside their SMSF,” said Mr Resnik.
“This is very strange when a property bubble is thought to exist in many Australians cities. It's time to reduce property exposures."
FinaMetrica also warned investors on making fast, irrational investment decisions following some of the recent volatility in markets.
“If you have a portfolio mix that you devised when you were in a calm and rational state or agreed to with your advisor, then now that markets are volatile it's unlikely to be a good time to change that mix,” said FinaMetrica.
“If you feel you must trade, don't read the newspaper headlines screaming market devastation and historical drops, or fantastic buying opportunities for 48 hours before you act.”
This risk profiler said it was also important investors remember that news reporting in market downturns focuses on the most dramatic, emphasising the largest drops in percentage and dollar terms.
“Many investors on the other hand own portfolios with a broad level of diversification,” said FinaMetrica.
“The volatility in their portfolios will be very different, and much less violent than the particular shares or asset classes reported in the news.”