By the end of the
2011 financial year the self managed super sector had ballooned to 456,000
funds with 867,000 members and $418 billion in assets. Contributions amount to
nearly $35 billion a year, making it the fastest growing sector of the
Australian superannuation industry, with almost double the growth in assets of
the industry as a whole.1.
This phenomenal
growth reflects the attraction SMSFs hold for many business owners and income
earners. The concept of having greater control over decisions and investment
choices may strike a chord with those who want to take a proactive interest in
their future prosperity; however an SMSF
may not be a suitable solution for everybody.
With greater freedom comes greater responsibility
and there are administrative and compliance demands when running a fund and as an SMSF trustee you must keep up to date
with the rules and regulations affecting super and importantly develop a sound
investment strategy to suit your needs. Interestingly, the desire for
greater choice and freedom over investment strategy seems to be contradicted by a heavy weighting of SMSF
investments in cash.
Over 60% of all
SMSF assets are directly invested in the narrow confine of either Australian
listed shares or cash and term deposits.1.
Any investment must
be consistent with your fund's written investment strategy and while troubled
investment markets in recent years may have driven many to seek the security
that cash investments offer, it may be a good time to start questioning the
wisdom of that approach.
The recent RBA
rate cut of 0.50% means that funds held in cash investments and term deposits,
are likely to have reduced returns. This should be of
concern to SMSF investors who are relying on their money to fund a retirement
that could last up to thirty years or more. As interest rates reduce, their
money becomes less effective at protecting against inflation.
There will always
be a place to have some proportion retained in the cash and fixed interest
sectors, but the recent interest movements should be sending a strong signal
for SMSF investors to reconsider their position.
These days there
are investment options that allow cautious investors to earn competitive
returns, yet still be well-placed to take advantage of opportunities that arise
as markets recover.
Ultimately, the right investment strategy will come
down to how much you need, how long you have to invest and how much risk you believe
suits you - so it’s important to get financial advice that’s relevant to your
specific needs, objectives and investment timeframes.
If you have an
SMSF, now is an ideal time to speak to your adviser about how you can take full
advantage of the freedom you have to be creative with your investment strategy
within your fund.
For further information, or to speak to an Adviser,
contact Hugh Kilpatrick* from RIadvice-RetireInvest on 03 9471 0080.
*Hugh Kilpatrick is an Authorised
Representative of RI Advice Group Pty Limited (ABN
23 001 774 125), Australian Financial Services Licence 238429. This editorial
does not consider your personal circumstances and is general advice only. You
should not act on the information provided without first obtaining professional
financial advice specific to your circumstances.
1.Australian Tax Office - Self-managed superannuation
funds: A statistical overview 2009-10, April 2012
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