Highlighting recent data from the ATO, Market Vectors said SMSF cash investments had risen to a record $156.2 billion during the March 2014 quarter, a 1.6 per cent increase from December last year.
The cash holdings represented 28 per cent of all SMSF assets, which hit $558.6 billion in the March quarter, up 2 per cent from $547.6 billion in December 2013.
Market Vectors Australia managing director Arian Neiron said these figures may negatively impact SMSFs ability to grow or even protect their wealth.
“Given that inflation could head higher and cash rates could remain steady SMSFs are risking value erosion by being so heavily invested in cash,” Mr Neiron said.
“Annual inflation was 2.9 per cent so the real returns on cash investments are close to zero, add in tax and you are in negative territory.”
“The Reserve Bank has this week indicated that it is not likely to raise interest rates anytime soon and banks have lowered rates on term deposits, SMSF investors should consider their options to protect against rising inflation,” he added.
Mr Neiron said however that there is one positive aspect of the ATO data, with it revealing cash investments had slowed to 1.6 per cent from 2.1 per cent a year earlier.
“[This highlights] that SMSFs’ appetite for cash investments could be waning,” he said.
Perhaps SMSF trustees are sick of all the failed and frozen funds that fund managers have lauded over – $37Billion (2006-2013) of investor funds never to be recovered. The average SMSF trustee may be concerned for return OF capital as more important that return ON capital.
What a chronically myopic observation by Market Vectors! With almost all commentators and “valuation experts” pointing to the relative high prices for fixed income,property and shares, SMSF trustees(who must focus on their specific member’s retirement dates) are justified in holding cash even if it only yields the inflation rate. Many SMSF’s have members within 10 or even 5 years of draw down and also , are not herd followers seeking to lock step with Industry funds or other pooled investment strategies. The whole point of SMSF’s is that they are run to the specific retirement timeframes, the specific risk profiles and the specific valuation perspectives of their members. Consequently , it should be seen as a sign that all is well when the asset allocation deviates from “modern portfolio theory 101”