The Australian share market has long been viewed as a safe haven for SMSF investors, bolstered by Australia’s relative policy stability especially in contrast to the unpredictable swings of global politics such as Donald Trump’s trade tariff policies. Yet SMSFs are potentially missing out on more attractive returns from offshore markets with Australia only making up around 2% of the global share market. SMSF investors are largely ignoring the diversification opportunities across sectors like healthcare, technology, and consumer brands that are underrepresented locally.

Numbers tell it all

Recent data release by the ATO reveal that SMSFs’ assets under management (AUM) stood at a record $1.02 trillion in the December quarter of 2024. Almost 30% of that, or $277.6 billion, was invested in Australian shares and just 2% invested in individual offshore equities, or $18.65 billion (noting this does not showcase the percentage of capital held in Australian-listed or unlisted funds which invest in international assets). However, many SMSFs are starting to embrace more accessible structures like exchange traded funds (ETFs) as a way to gain exposure to individual offshore companies.

In addition, SMSFs had invested a record $168 billion in direct Australian property, accounting for 16.5% of their total assets. SMSFs held almost as much, or $161.4 billion, in cash investments as at December 2024, and with interest rates expecting to decline in 2025, there could be more downward pressure on yields from cash.

Arguably, many SMSF portfolios need greater diversification and exposure to international share investment, which can offer more possibilities for gain. By investing internationally, SMSFs can gain access to leading global technology companies such as Nvidia, Microsoft, Apple, Google, and Amazon and sectors such as robotics, artificial intelligence (AI) and healthcare giants such as Eli Lilly, which is leading developments in weight loss drugs. In contrast, both healthcare and technology make up relatively minor segments of the Australian share market, which is dominated by banks and resources.

Staying at home is no holiday

Although Australian shares may occasionally outperform global markets, like we saw in 2009 and 2010, this isn’t guaranteed. There are often extended periods when the Australian share market has lagged behind international counterparts.

Over the last five years, the S&P 500 has returned 122% and the NASDAQ composite around 121%.

The S&P/ASX 200 has gained 97% but a large source of this came from dividends instead of price growth. We could see similar outperformance by US stocks over the next five years. Of course, no one knows if Australia will regain the lead, but with the US market rich in growth companies with strong fundamentals, US repeating its outperformance over Australia is not out of the question once again.

In recent times, the larger-than-expected drop in tariffs between the US and China this month has boosted global stock markets, especially technology stocks. The US market is now within striking distance of new record highs, after recording a sensational comeback since Trump’s “Liberation Day”, while Chinese and European markets have also enjoyed a strong start to the year.. Arguably SMSFs could ride this momentum and benefit from a greater exposure to broader countries than just Australia in their portfolio.

ETFs offer an easy path

ETFs offer SMSFs a simple, low-cost way to access global markets and diversify across geographies and sectors, without the need to pick individual stocks. ETFs tracking global shares help investors build a more balanced portfolio aligned with long-term retirement goals, because true wealth isn’t just mined from the Australian outback but built by exploring offshore opportunities.

An important lesson when it comes to investing is that different markets perform differently over time. International exposure lets you benefit from growth in regions or industries that may outperform the Australian market at various times.

There are other diversification benefits of investing in international shares. Unhedged international shares provide protection against local equity market volatility, whereby any fall in the Australian dollar helps to cushion equity market losses. That’s because a falling Australian dollar magnifies returns for international investors when assets are converted into local currency. So, if, for example, the Australian dollar falls 10 per cent, the value of US investments would rise by 10 per cent. For investors in offshore assets, such currency movements can represent a real gain in their portfolio.

There are hundreds of ETFs listed on the ASX which offer access to both developed and emerging share markets. Sticking only to Australian shares is like booking a holiday and never leaving your postcode. International markets open the door to a whole world of growth. For SMSFs looking to make the most of their retirement years, that extra passport provides a stamp of international diversification that could make all the difference to a SMSF’s nest egg.