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Most SMSFs are still poorly diversified

 

Data only just released by the Australian Tax Office, detailing the asset allocations for all SMSFs in the quarter to the end of June, shows there was still a large investment weighting at that time towards cash and term deposits.

 

         
From its COVID-inspired low point in late March, the Australian share market – as measured by the performance of the S&P/ASX 300 Index – has surged more than 40 per cent.
 
It's an impressive rebound in such a short period of time, delivering strong returns to equity investors, especially to those who have broad exposure to the Australian share market through low-cost index-tracking exchange traded funds (ETF) and managed funds.
 
But it seems many of Australia's roughly 600,000 self-managed super funds (SMSFs), covering more than 1.1 million members, have failed to capitalise on the share market's robust growth.
 
Data only just released by the Australian Tax Office, detailing the asset allocations for all SMSFs in the quarter to the end of June, shows there was still a large investment weighting at that time towards cash and term deposits.
 
In fact, cash still remains the second-biggest holding for SMSFs behind ASX-listed shares.
 
At 30 June 2020 SMSF trustees were holding around $191.5 billion in Australian shares and $156.3 billion in cash, representing 26.1 per cent and 21.3 per cent respectively of the $705.4 billion in total SMSF assets.
 
Total SMSF cash holdings were largely unchanged on the March quarter number of $156.6 billion.
 
While the value of holdings in Australian shares at the end of June was actually up considerably on the $165.3 billion total value at the end of the March quarter, that's largely explained by the 16.5 per cent rise on the local share market between 1 April and 30 June.
 
By contrast, the average returns from term deposit accounts were below 1 per cent in the June quarter, and remain so.
 

Small SMSFs have even more cash

 
The stubbornly high percentage of SMSF assets in low-yielding cash is even more evident in the ATO's data breakdown of asset distributions by fund size.
 
Its latest data has only recently been extracted, but relates to the 2018-19 financial year.
 
It shows that, on average, super funds with $1 million to $2 million had around 30 per cent of their total assets in Australian listed shares, and 23 per cent in cash and term deposits.
 
The next-largest holdings in this subset were unlisted trusts (10 per cent) and non-residential real property (8 per cent).
 
SMSFs with $500,000 to $1 million were holding around 25 per cent in listed shares and 24 per cent in cash.
 
Interestingly, the numbers started turning the other way in smaller SMSFs. Those with between $200,000 and $500,000 in assets were holding around 23 per cent in listed Australian shares and an even larger 29 per cent in cash.
 
The smaller the amount of assets, the higher amount of cash.
 
For SMSFs between $100,000 and $200,000, the average holdings were 23 per cent in Australian-listed shares and 42 per cent in cash. And, for funds holding between $50,000 and $100,000 in super assets, the numbers were 23 per cent in Australian-listed shares and 45 per cent in cash.
 

Lack of diversification

 
Another observation from the ATO's data is that many SMSFs are generally not well diversified into other major asset classes, including international equities and fixed interest.
 
Unlisted trusts, which by and large represent unitised unlisted property securities, are third-highest in terms of total SMSF assets, accounting for around $86 billion of capital (11.7 per cent).
 
Commercial properties account for more than $73 billion in SMSF assets.
 
Overseas shares, which accounted for $7.7 billion of total SMSF assets at the end of June, rank outside of the top 10.
 
The table below shows the top 10 holdings represent almost 100 per cent of the assets held by SMSFs.
 

Top 10 SMSF Asset Allocations at 30 June 2020

Asset class Amount ($m) % of total SMSF assets
Listed shares 191,464 26.1
Cash and term deposits 156,278 21.3
Unlisted trusts 85,752 11.7
Non-residential real property 73,493 10.0
Limited recourse borrowing arrangements 50,234 6.8
Listed trusts 43,330 5.9
Residential real property 39,100 5.3
Other managed investments 37,700 5.1
Other assets 19,352 2.6
Debt securities 11,525 1.6
Total 708,228 96.4

Source: Australian Tax Office

 

The ATO's crackdown on SMSF strategies

 
The overweighting by SMSF trustees into Australian shares, cash and illiquid assets such as property has been on the ATO's radar for some time.
 
In late February the SMSF regulator released new guidance for trustees around what should be detailed in their fund's written investment strategy.
 
The ATO specifically wants to know from trustees how the asset allocations they make from their super fund assets supports their investment approach towards achieving their retirement goals.
 
For funds with too much asset concentration risk, trustees must justify their lack of diversification and how they believe this will achieve their overall goals.
 

Taking a broader view

 
While share markets have rebounded since March, ongoing uncertainty over COVID, the US election and other situations will ensure equity markets remain volatile over the short-to-medium term.
 
At the same time record low interest rates will ensure ongoing poor yields from cash holdings, meaning those with large cash balances needing to generate income may need to consider other types of investment assets.
 
Diversification to offset risks across different asset classes is one of the key elements of every investment strategy.
 
The latest ATO asset allocation data once again illustrates that many SMSF trustees should be taking a broader investment approach.
 
It may be prudent for some SMSFs trustees, especially those with large cash balances earning near-zero per cent returns, to consider consulting a licensed financial adviser to discuss their investment strategy.
 
 
 

Tony Kaye
20 Oct, 2020
vanguardinvestments.com.au

 

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Retiring on your own terms is not always easy to achieve, however it is evident that those who plan for retirement are more likely to do so. Results also show that obtaining professional help during the pre-retirement years further improves the probability of attaining your retirement objectives.

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Superannuation

Superannuation is mandatory but taking an early and active interest in your retirement planning is critical to ensuring your benefits are maximised by the time you retire.  Many will have a superannuation scheme through employment but increasing numbers are starting their own Self-Managed Super Fund (SMSF).

For many, simply relying on employer contributions may not be enough to provide the lifestyle you desire at retirement. We can assist in building strategies to ensure your retirement goals are met and your required lifestyle is maintained throughout retirement.

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Self Managed Super Funds

Self-Managed Superannuation Funds (SMSFs) offer a good strategy option for many individuals, families and small business owners to build tax effective wealth and to protect assets over time. SMSFs are becoming popular for those who are ready to take control of their own super investments as they give you ultimate control and flexibility to manage your retirement benefits.

It must be noted though, that you will have increased responsibilities as a trustee of the fund. As a SMSF Trustee you need to keep up to date with all required regulations and keep up with the fast paced financial markets.

Wybenga Financial can work with you to understand your personal financial situation and decide whether a SMSF structure is appropriate for you. We will also make sure your assets are invested in the most effective way to maximise your retirement benefits.

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Wybenga Financial would welcome the opportunity to discuss how we can help maximise your opportunities to grow your wealth through a Self Managed Superannuation Fund (SMSF).  Contact us today to discuss how we can work together:  02 9300 3000 or info@wybengagroup.com.au

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Please enjoy the links to these free tools supplied by MoneySmart – a great resource for general financial information. Please get in touch if you would like to discuss any questions that you may have as a result of using these calculators.

Tess Uncle

B.Sc, M.Com, CA, DipFP

Tess has over 15-years experience in Chartered Accounting Firms and in this time has had a broad range of experience in superannuation, taxation, business services, and financial strategy.

Over the last two-years, Tess has turned her attention to Financial Planning, earning a Diploma of Financial Planning in 2015 and leading the newly established financial division of the Wybenga Group as a director of Wybenga Financial.

Tess’s mission is to bring the ethics and integrity of her Chartered Accounting background to the area of wealth management.

As a woman in a male dominated field, Tess is active in promoting gender equality in the industry through various programs and mentoring opportunities.

Using her depth of knowledge and experience in tax and accounting Tess is able to demonstrate a level of competence that is unique in the Financial Planning sector.

  • 2001 – Commenced employment with Wybenga & Partners and part-time accountancy studies
  • 2004 – Graduated Masters of Commerce from the University of New South Wales
  • 2005 – Admitted as an Associate Member of the Institute of Chartered Accountants Australia
  • 2007 – Promoted to Manager at Wybenga & Partners
  • 2012 – Appointed as Associate Director
  • 2015 – Awarded a Diploma of Financial Planning
  • 2016 – Appointed as Partner of Wybenga Group and Director of Wybenga Financial

Adam Roberts

B.Bus, B.Sc, CA, DipFP

Adam has over 13-years experience in Chartered Accounting Firms and in this time has had a broad range of experience in superannuation, taxation, business services, and financial strategy.

Over the last two-years, Adam has turned his attention to Financial Planning, earning a Diploma of Financial Planning in 2015 and leading the newly established financial division of the Wybenga Group as a director of Wybenga Financial.

Adam’s mission is to bring the ethics and integrity of his Chartered Accounting background to the area of wealth management.

Combining traditional accounting and financial services has been a welcome move for Adam, allowing him to operate and advise in the financial sector that has been a long time personal passion.

Using his depth of knowledge and experience in tax and accounting Adam is able to demonstrate a level of competence that is unique in the Financial Planning sector.

  • 2005 – Graduated Bachelor of Science from the University of Western Sydney
  • 2005 – Commenced employment with Wybenga & Partners and part-time accountancy studies
  • 2007 – Graduated Bachelor of Business from the University of Western Sydney
  • 2010 – Admitted as an Associate Member of the Institute of Chartered Accountants Australia
  • 2010 – Promoted to Manager at Wybenga & Partners
  • 2012 – Appointed as Associate Director
  • 2015 – Awarded a Diploma of Financial Planning
  • 2016 – Appointed as Partner of Wybenga Group and Director of Wybenga Financial

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What is an Advisory Cadetship?
An Advisory Cadetship enables you to commence your career whilst attaining the necessary university qualifications by studying part-time.

How does it work?
Generally, our cadets complete a relevant business or accounting degree at the University of New South Wales, the University of Technology Sydney, Macquarie University, or the University of Western Sydney.

The Firm provides 3-hours paid study leave per week to attend university. This can either be taken at the one time or broken between days depending on the individual’s requirements. In addition, the Firm provides paid study leave for both mid-semester and end-of-year exams.

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  • Career path – on completion of their degree our cadets have significant practical experience which will assist them in advancing their careers
  • Work helps your studies – by working full-time our cadets are able to apply their practical knowledge in the university subjects
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What happens when I complete my degree?
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There are always progression opportunities for the right cadets and we are dedicated to the long term development of our staff.

Who should apply?
Current Year 12 students or first/second year University Students who:

  • want to commence their career in financial advisory;
  • are due to commence or are currently completing a part-time business or commerce degree at university with an advisory major;
  • want to gain valuable hands-on experience while completing their qualifications;
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  • are motivated and mature minded.

How do I apply for an Advisory Cadetship?
To apply for a Cadetship position at Wybenga Financial send us your details. Please also include in your covering letter why you wish to do a cadetship, include relevant qualities you possess, main interests / achievements, and any previous employment.

Interested candidates should initially forward a resume/covering letter of no more than 3-pages. Please provide full details of contact information (telephone or e-mail).

What if I have more questions?
For further information about our Cadetship program, please send your enquiry to info@wybengagroup.com.au