SMSFs holding $50bn in excess cash, says Vanguard
Market uncertainty and a lack of perceived investment opportunities have left SMSFs holding billions of dollars in excess cash, according to a recent report.
The 2018 Vanguard and Investment Trends SMSF Report shows that while SMSF assets have grown in the 12 months to March, SMSFs appear to be keeping $50 billion or 6 per cent of overall SMSF assets in excess cash.
The report points to a persistent lack of diversification in SMSF portfolios, with half of trustees saying that more than 50 per cent of their portfolio is invested in a single investment type, typically Australian shares.
Despite 82 per cent of trustees in the survey agreeing that diversification is important, only 54 per cent consider their portfolio to be diversified enough.
Vanguard head of corporate affairs Robin Bowerman said the definition of diversification by respondents was also concerning with 84 per cent of respondents considering an investment across 30 Australian shares to be a well-diversified portfolio, when instead it is “harbouring high equity concentration risk and home country bias, in addition to very low levels of exposure to international shares and bonds”.
“While there is a growing understanding of diversification, SMSFs seem to be bearing significant risk, largely relying on continued success of the Australian sharemarket, which represents just 3 per cent of the global investable equity market,” said Mr Bowerman.
The report also indicates that regulatory uncertainty has overtaken investment selection as the main challenge in managing an SMSF.
The top three investment goals cited by trustees in the report include building a sustainable income stream, maximising capital growth and managing risk.