{"id":1800,"date":"2024-02-29T05:16:00","date_gmt":"2024-02-29T05:16:00","guid":{"rendered":"https:\/\/actinvest.com.au\/?p=1800"},"modified":"2024-02-29T05:16:00","modified_gmt":"2024-02-29T05:16:00","slug":"could-your-smsf-do-with-more-diversification","status":"publish","type":"post","link":"https:\/\/actinvest.com.au\/index.php\/could-your-smsf-do-with-more-diversification\/","title":{"rendered":"Could your SMSF do with more diversification?"},"content":{"rendered":"

Australian Tax Office Office data shows a high percentage of SMSFs are lacking portfolio diversification.<\/p>\n

\u00a0<\/p>\n

\"\"<\/p>\n

.<\/p>\n

The Australian Taxation Office has just released its\u00a0annual overview of key statistics\u00a0and analysis of Australia\u2019s self-managed superannuation fund (SMSF) sector for the 2021-22 financial year.<\/p>\n

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.<\/p>\n

According to the ATO\u2019s 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.<\/p>\n

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).<\/p>\n

That\u2019s means just under 60% of total SMSF assets was invested in just three asset classes.<\/p>\n

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).<\/p>\n

The ATO\u2019s 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.<\/p>\n

High asset class concentrations<\/h5>\n

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.<\/p>\n

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.<\/p>\n

Distribution (%) of SMSFs by asset concentration<\/h5>\n\n\n\n\n\n\n\n\n\n
\n

Asset concentration<\/strong><\/p>\n<\/td>\n

\n

2021-22<\/strong><\/p>\n<\/td>\n<\/tr>\n

\n

100%<\/strong><\/p>\n<\/td>\n

\n

7.6%<\/p>\n<\/td>\n<\/tr>\n

\n

>=90%<\/strong><\/p>\n<\/td>\n

\n

27.8%<\/p>\n<\/td>\n<\/tr>\n

\n

>=80%<\/strong><\/p>\n<\/td>\n

\n

41.8%<\/p>\n<\/td>\n<\/tr>\n

\n

>=70%<\/strong><\/p>\n<\/td>\n

\n

54.1%<\/p>\n<\/td>\n<\/tr>\n

\n

>=60%<\/strong><\/p>\n<\/td>\n

\n

66.6%<\/p>\n<\/td>\n<\/tr>\n

\n

>=50%<\/strong><\/p>\n<\/td>\n

\n

80.4%<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Source:<\/strong>\u00a0Australian Tax Office<\/sup><\/p>\n

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.<\/p>\n

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.<\/p>\n

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.<\/p>\n

Even still, it\u2019s evident from the ATO data that even many large SMSFs were holding a high percentage of their assets in one asset class.<\/p>\n

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.<\/p>\n

SMSF asset concentration by fund size, 30 June 2022<\/h5>\n\n\n\n\n\n\n\n\n\n\n\n\n
\n

Fund size<\/strong><\/p>\n<\/td>\n

\n

100%<\/strong><\/p>\n<\/td>\n

\n

>=90%<\/strong><\/p>\n<\/td>\n

\n

>=80%<\/strong><\/p>\n<\/td>\n

\n

>=70%<\/strong><\/p>\n<\/td>\n

\n

>=60%<\/strong><\/p>\n<\/td>\n

\n

>=50%<\/strong><\/p>\n<\/td>\n<\/tr>\n

\n

$1-$50k<\/strong><\/p>\n<\/td>\n

\n

42.4%<\/p>\n<\/td>\n

\n

61.4%<\/p>\n<\/td>\n

\n

70.5%<\/p>\n<\/td>\n

\n

77.5%<\/p>\n<\/td>\n

\n

84.0%<\/p>\n<\/td>\n

\n

90.1%<\/p>\n<\/td>\n<\/tr>\n

\n

>$50k-$100k<\/strong><\/p>\n<\/td>\n

\n

23.1%<\/p>\n<\/td>\n

\n

48.5%<\/p>\n<\/td>\n

\n

61.0%<\/p>\n<\/td>\n

\n

70.8%<\/p>\n<\/td>\n

\n

80.0%<\/p>\n<\/td>\n

\n

89.1%<\/p>\n<\/td>\n<\/tr>\n

\n

>$100k-$200k<\/strong><\/p>\n<\/td>\n

\n

18.1%<\/p>\n<\/td>\n

\n

44.1%<\/p>\n<\/td>\n

\n

57.7%<\/p>\n<\/td>\n

\n

69.6%<\/p>\n<\/td>\n

\n

80.3%<\/p>\n<\/td>\n

\n

90.9%<\/p>\n<\/td>\n<\/tr>\n

\n

>$200k-$500k<\/strong><\/p>\n<\/td>\n

\n

11.0%<\/p>\n<\/td>\n

\n

37.3%<\/p>\n<\/td>\n

\n

53.5%<\/p>\n<\/td>\n

\n

65.8%<\/p>\n<\/td>\n

\n

77.0%<\/p>\n<\/td>\n

\n

88.7%<\/p>\n<\/td>\n<\/tr>\n

\n

>$500k-$1m<\/strong><\/p>\n<\/td>\n

\n

5.4%<\/p>\n<\/td>\n

\n

29.3%<\/p>\n<\/td>\n

\n

46.2%<\/p>\n<\/td>\n

\n

59.9%<\/p>\n<\/td>\n

\n

72.6%<\/p>\n<\/td>\n

\n

85.8%<\/p>\n<\/td>\n<\/tr>\n

\n

>$1m-$2m<\/strong><\/p>\n<\/td>\n

\n

3.7%<\/p>\n<\/td>\n

\n

21.1%<\/p>\n<\/td>\n

\n

34.4%<\/p>\n<\/td>\n

\n

47.5%<\/p>\n<\/td>\n

\n

61.8%<\/p>\n<\/td>\n

\n

78.8%<\/p>\n<\/td>\n<\/tr>\n

\n

>$2m-$5m<\/strong><\/p>\n<\/td>\n

\n

2.3%<\/p>\n<\/td>\n

\n

15.8%<\/p>\n<\/td>\n

\n

27.6%<\/p>\n<\/td>\n

\n

40.5%<\/p>\n<\/td>\n

\n

55.6%<\/p>\n<\/td>\n

\n

73.3%<\/p>\n<\/td>\n<\/tr>\n

\n

>$5m-$10m<\/strong><\/p>\n<\/td>\n

\n

1.4%<\/p>\n<\/td>\n

\n

13.3%<\/p>\n<\/td>\n

\n

24.6%<\/p>\n<\/td>\n

\n

37.6%<\/p>\n<\/td>\n

\n

52.0%<\/p>\n<\/td>\n

\n

69.4%<\/p>\n<\/td>\n<\/tr>\n

\n

>$10m<\/strong><\/p>\n<\/td>\n

\n

1.4%<\/p>\n<\/td>\n

\n

14.1%<\/p>\n<\/td>\n

\n

25.4%<\/p>\n<\/td>\n

\n

37.9%<\/p>\n<\/td>\n

\n

52.1%<\/p>\n<\/td>\n

\n

68.6%<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Source:\u00a0<\/strong>Australian Tax Office<\/sup><\/p>\n

The importance of diversification<\/h5>\n

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

That largely comes back to the old adage: don\u2019t put all your eggs into one basket.<\/p>\n

While spreading your investments across different baskets won\u2019t 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.<\/p>\n

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%.<\/p>\n

Equity investments (shares) delivered much higher returns, although there was a lot of disparity between different share markets.<\/p>\n

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\u2019s gain last financial year was well behind the 23.5% total return from United States shares and the 22.6% return from international shares.<\/p>\n

The\u00a02023 Vanguard Index Chart\u00a0shows 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.<\/p>\n

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.<\/p>\n

That\u2019s why having a broad spectrum of investments will invariably deliver smoother returns over the longer term.<\/p>\n

\u00a0<\/p>\n

\u00a0<\/p>\n

\u00a0<\/p>\n

\u00a0<\/p>\n

February 2024
\nTony Kaye, Senior Personal Finance Writer
\nvanguard.com.au<\/p>\n","protected":false},"excerpt":{"rendered":"

Australian Tax Office Office data shows a high percentage of SMSFs are lacking portfolio diversification.<\/p>\n

\u00a0<\/p>\n","protected":false},"author":1,"featured_media":1801,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[4],"tags":[],"_links":{"self":[{"href":"https:\/\/actinvest.com.au\/index.php\/wp-json\/wp\/v2\/posts\/1800"}],"collection":[{"href":"https:\/\/actinvest.com.au\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/actinvest.com.au\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/actinvest.com.au\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/actinvest.com.au\/index.php\/wp-json\/wp\/v2\/comments?post=1800"}],"version-history":[{"count":1,"href":"https:\/\/actinvest.com.au\/index.php\/wp-json\/wp\/v2\/posts\/1800\/revisions"}],"predecessor-version":[{"id":1802,"href":"https:\/\/actinvest.com.au\/index.php\/wp-json\/wp\/v2\/posts\/1800\/revisions\/1802"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/actinvest.com.au\/index.php\/wp-json\/wp\/v2\/media\/1801"}],"wp:attachment":[{"href":"https:\/\/actinvest.com.au\/index.php\/wp-json\/wp\/v2\/media?parent=1800"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/actinvest.com.au\/index.php\/wp-json\/wp\/v2\/categories?post=1800"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/actinvest.com.au\/index.php\/wp-json\/wp\/v2\/tags?post=1800"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}