Salus Private Wealth Logo

Latest News

Could your SMSF do with more diversification?

Australian Tax Office Office data shows a high percentage of SMSFs are lacking portfolio diversification.

.

The Australian Taxation Office has just released its annual overview of key statistics and analysis of Australia’s self-managed superannuation fund (SMSF) sector for the 2021-22 financial year.

While the ATO releases its most current SMSF data on a quarterly basis, its annual overviews provide a more in-depth view of how the members of self-managed funds are investing their retirement savings.

According to the ATO’s latest quarterly data, at 30 September 2023 there were close to 612,000 SMSFs managing $851.2 billion of retirement savings on behalf of approximately 1.14 million SMSF members.

Of the total SMSF assets, 29.1% ($248.2 billion) was held in listed shares, 17% ($146.6 billion) was invested in cash and term deposits, and about 13.3% ($113.7 billion) was invested in unlisted trusts (typically through unit holdings in unlisted properties).

That’s means just under 60% of total SMSF assets was invested in just three asset classes.

The remainder was spread across various other asset types, although another large chunk was invested in direct residential and commercial real estate investments ($135.4 billion).

The ATO’s data on where SMSFs are investing indicates there is a definite portfolio tilt towards certain asset classes, however further analysis shows many SMSF trustees are very highly concentrated in just one asset class.

High asset class concentrations

The table below shows the distribution of SMSFs that had 50% or more of their assets by value invested in just one asset class as at 30 June 2022.

For example, based on the last line of the table, at 30 June 2022 over 80% of SMSFs held 50% or more of their investments in one asset class.

Distribution (%) of SMSFs by asset concentration

Asset concentration

2021-22

100%

7.6%

>=90%

27.8%

>=80%

41.8%

>=70%

54.1%

>=60%

66.6%

>=50%

80.4%

Source: Australian Tax Office

In addition, 41.8% of SMSFs held up to 80% of their assets in one asset class; 27.8% held up to 90% of their assets in one asset class; and 7.6% of SMSFs had an asset class concentration of 100%. In other words, all their assets were held within one asset class.

The ATO has also broken down its asset class concentration by SMSF size. The table below shows, by fund size, the distribution of SMSFs that have 50% or more of their assets by value invested in one asset class. The figures are based on SMSF annual return form data.

The table shows that smaller SMSFs generally had less diversification. For example, line one of the table shows 42.4% of SMSFs with assets of up to $50,000 held 100% of their assets in one asset class. This compared to 14.2% combined for the SMSFs with assets of $500,000 or more.

Even still, it’s evident from the ATO data that even many large SMSFs were holding a high percentage of their assets in one asset class.

That is, 59.9% of SMSFs with assets between $500,000 and $1 million had up to 70% of their assets in one asset class, and almost half (46.2%) had up to 80% of their assets in one asset class.

SMSF asset concentration by fund size, 30 June 2022

Fund size

100%

>=90%

>=80%

>=70%

>=60%

>=50%

$1-$50k

42.4%

61.4%

70.5%

77.5%

84.0%

90.1%

>$50k-$100k

23.1%

48.5%

61.0%

70.8%

80.0%

89.1%

>$100k-$200k

18.1%

44.1%

57.7%

69.6%

80.3%

90.9%

>$200k-$500k

11.0%

37.3%

53.5%

65.8%

77.0%

88.7%

>$500k-$1m

5.4%

29.3%

46.2%

59.9%

72.6%

85.8%

>$1m-$2m

3.7%

21.1%

34.4%

47.5%

61.8%

78.8%

>$2m-$5m

2.3%

15.8%

27.6%

40.5%

55.6%

73.3%

>$5m-$10m

1.4%

13.3%

24.6%

37.6%

52.0%

69.4%

>$10m

1.4%

14.1%

25.4%

37.9%

52.1%

68.6%

Source: Australian Tax Office

The importance of diversification

Investors holding a mix of investments, spread across different types of assets, tend to experience lower portfolio volatility and more stable returns over time.

That largely comes back to the old adage: don’t put all your eggs into one basket.

While spreading your investments across different baskets won’t totally protect your portfolio from negative returns, having exposure to a range of assets will likely cushion the impact of losses (or lower returns) from different assets, sectors and regions.

In the 2022-23 financial year, for example, the average return from investments in cash and term deposits was 2.9%. The average return from Australian bonds was even lower at just 1.2%.

Equity investments (shares) delivered much higher returns, although there was a lot of disparity between different share markets.

The Australian shares asset class recorded a total gain of 14.8%, which compared with a loss of 7.4% in 2021-22. Yet, the Australian share market’s gain last financial year was well behind the 23.5% total return from United States shares and the 22.6% return from international shares.

The 2023 Vanguard Index Chart shows that, over a 30-year period between 1994 and 2023, there were only a handful of times when the same asset class delivered the highest returns over consecutive years.

Unless you have a crystal ball, trying to pick which asset class will be the best performer from one year to the next is a losing game. In 2021-22, every asset class other than cash recorded negative returns. And, in 2020-21, Australian shares outperformed U.S. shares.

That’s why having a broad spectrum of investments will invariably deliver smoother returns over the longer term.

 

 

 

 

February 2024
Tony Kaye, Senior Personal Finance Writer
vanguard.com.au

Latest News

Louise Laing

Louise founded Salus Private Wealth to offer high quality personal advice to clients who want to work closely with an adviser for the long term. Her philosophy that understanding each individual and their motivations and needs is key to an enduring and successful financial planning relationship is at the heart of the business.

She first engaged the services of a financial adviser herself when she was in her early 20s (long before becoming one) and believes the non-judgemental support and education about her position and options provided at this early stage has allowed her to make confident decisions in different aspects of life since then.

This confidence and positivity in making choices, financial or not, is what she wants to give to her clients.

Superannuation & Retirement

Superannuation is one of the largest and longest duration investments most people in Australia have, making it a critical part of long-term planning even if retirement feels like a distant objective. For those in the lead into retirement, we design strategies so you have peace of mind that when you start to draw on your retirement savings, you have liquidity and stability to support that.

Legislation and rules are changed regularly, so advice can help you take advantage of opportunities to build for the future. We are authorised to provide advice on and to SMSFs.

Contact us today to discuss how we can work together: (02) 8044 3057 or email us at info@saluspw.com.au

Insurance

Protecting your wealth, lifestyle and family is high on the priority list for many clients and this is an area of advice need that can change very quickly. Ensuring you have the cover you need can give peace of mind that what’s important is taken care of in the event of illness, injury and death, but we also make sure over time you are not paying for cover you no longer need.

Contact us today to discuss how we can work together: (02) 8044 3057 or email us at info@saluspw.com.au

Estate Planning

While talking about death doesn’t seem like a particularly appealing prospect, it’s a topic we see as a vital part of financial planning. Importantly, it’s a topic for every adult, regardless of their stage in life. Without a proper estate plan assets may not be passed where you’d like them to go, family conflict can ensue, and in the event you lose capacity there may not be an authority in place for the person you would choose to make those decisions for you to do so. While it can be an uncomfortable subject, we are experienced in facilitating these conversations as part of our advice process.

Contact us today to discuss how we can work together: (02) 8044 3057 or email us at info@saluspw.com.au

Strategic Debt & Cashflow

Managing debt efficiently can have a material impact on your financial wellbeing and lifestyle. Having a solid plan to understand where your money goes and manage cashflow and debt can eliminate stress and set you on a positive path toward achieving your goals.

Contact us today to discuss how we can work together: (02) 8044 3057 or email us at info@saluspw.com.au

Investments

Once we have a clear understanding of what we are aiming for and how you feel about taking on investment risk, we can help direct your funds into appropriate investments to meet your goals. This includes recommending the investment structure, consideration of tax implications, asset types, and putting together a suitable blend for you. You will have transparency of and access to view your investments, providing security.

Contact us today to discuss how we can work together: (02) 8044 3057 or email us at info@saluspw.com.au

Aged Care

Aged care needs can arise suddenly. The complexity of managing this can be a significant challenge at a time when your focus should be on the person requiring care. We can assess the alternative funding options to ensure you make an informed choice in the best interests of the person requiring care.

Contact us today to discuss how we can work together: (02) 8044 3057 or email us at info@saluspw.com.au

Tax Diary

General Calculators

 

Financial Videos

Secure File Transfer

Secure File Transfer is a facility that allows the safe and secure exchange of confidential files or documents between you and us.

Email is very convenient in our business world, there is no doubting that. However email messages and attachments can be intercepted by third parties, putting your privacy and identity at risk if used to send confidential files or documents. Secure File Transfer eliminates this risk.

Login to Secure File Transfer, or contact us if you require a username and password.

General Disclaimer

Website Disclaimer

The Trustee for Laing Weaver Family Trust T/A Salus Private Wealth (Corporate Authorised Representative No. 1305571) and all our advisers are Authorised Representatives of Finchley & Kent Pty Ltd, Australian Financial Services Licence No. 555169, ABN 50 673 291 079, and has its registered office at Level 63, 25 Martin Place, Sydney NSW 2000.

Finchley & Kent Pty Ltd Australian Financial Services Licence applies to financial products only. Please note that Property Investment, Tax & Accounting, Mortgages & Finance are not considered to be financial products.

Disclaimer: The information contained within the website is of a general nature only. Whilst every care has been taken to ensure the accuracy of the material, The Trustee for Laing Weaver Family Trust T/A Salus Private Wealth and Finchley & Kent Pty Ltd will not bear responsibility or liability for any action taken by any person, persons or organisation on the purported basis of information contained herein. Without limiting the generality of the foregoing, no person, persons or organisation should invest monies or take action on reliance of the material contained herein but instead should satisfy themselves independently of the appropriateness of such action.