Self-Managed Super Fund (SMSF) trustees often ask themselves, “What is the right mix of investments for my SMSF?” It’s a very common question, and one that will need to consider individual preference and the time until retirement. The answer will not be the same for everyone, even for members within the same SMSF.

The ‘right’ mix will be based on things like tolerance to investment risk and various other factors such as the cash flow needs of the SMSF and the investment mix of assets held by members outside of the SMSF. First and foremost the mix of the investments within the SMSF must be in line with the SMSF’s investment strategy. This is developed and reviewed by the trustees of the SMSF, and stipulates what types of assets the SMSF is allowed to invest in and over what timeframe.

Here we look at what to consider when deciding on the right mix of investments for your SMSF as you countdown the years to retirement.

40 years to go

Someone with a 40-year investment timeframe is likely to be at the accumulation stage of their SMSF. This person may generally have a higher appetite for investment risk (when compared to someone with a 10-year investment timeframe). This means they may invest larger parts of their SMSF in growth orientated assets such as shares and property. These assets generally have a higher rate of return over the long-term compared to defensive assets such as cash and term deposits.

30 years to go

Someone with a 30-year investment time frame (typically 50 years+) is likely to be at the wealth preservation phase. They generally have more working years behind them than ahead of them. They still need growth in their SMSF as they may potentially be retired for 30+ years and need an asset base to sustain them.

At the same time, they do not have the same timeframes as they did previously to recoup large investment losses if there is a significant market downturn and they plan on retiring in the next few years.

This is a stage where there needs to be a delicate balance between growth assets to address longevity risk (the risk of outliving your retirement savings) while having enough defensive and liquid assets (such as cash and bonds) to mitigate any potential capital losses from a market downturn and provide a regular income in retirement.

20 years to go

Someone with a 20-year investment time frame (typically 60 years+) is generally in the pension phase of their SMSF. They are looking for the asset base within their SMSF to provide them with regular and reliable income. Other issues may present themselves during this age. A member of an SMSF may become incapacitated and may need to liquidate assets of the SMSF to pay for large lump sum medical expenses or fund a bond to enter an aged care facility. Or it could be that it is the member’s goal to utilise the SMSF to maintain lifestyle in retirement whilst leaving behind a legacy for loved ones.

At this stage it’s really important to have liquidity, especially if instant and unexpected access to funds is required to fund large outlays such as a bond for aged care. Furthermore, given that members are expected to draw down income in regular intervals, this can become problematic when it comes to holding direct real estate.

All in all there is no one ‘right’ mix of assets when it comes to investing at different life stages for members of an SMSF. The right mix for you will not necessarily be the right mix for someone in similar circumstances. The right mix for you will be based on your unique circumstances, financial goals, investment timeframes, and your psychology towards investing and money.

 

Source: BT

 

Discover the benefits of a privately owned Licensee.

Voulla Flaskos

Source Accounting

“Capstone made everything so easy by providing all the templates and support we need which makes me feel comfortable that I am in good hands with my licensee. I would highly recommend Capstone to any fellow Accountant."

Travis Allen

Hillyer Riches Accountants

“We have gained assistance with transitioning to the new regulatory environment and provided a new service of strategic financial planning. Capstone have been of tremendous value in assisting with this transition."

Tania Magon

Maven Accounting

“I would recommend Capstone to any accountant seeking to become licenced within the financial services industry. Their personal service and support to me and my firm has been exceptional."

Anthony Buckley

Financial Planit

“I joined Capstone Financial Planning in 2003 as I was looking for a Group that could offer a high level of independence and freedom that came from not being institutionally owned."

Maria Picciani

Willow Wealth Management

“Compliance support and feedback is crucial to our business. The Capstone team are always there to assist us in improving and providing best advice and best practice standards. Their input is always positive and constructive."

KATRINA GAY

Nicholson Financial Planning

“I would happily recommend Capstone as a licensee to other advisers. The Capstone staff are friendly, knowledgeable, and professional, and they are genuinely committed to meeting their advisers' needs. I feel very secure in the knowledge that I have Capstone backing my business.”

MARK COOPER

Acquire Strategic Advisers

“Capstone’s support has been exceptional and consistent from the time our business made the transition. Capstone is continually trying to enhance their service offerings to their advisers, at both the higher level, and more specific lower levels within our business. They are an exceptional licensee and lead from the front.”

JEANETTE SCHRAM

Nett Assets

“I can highly recommend Capstone for planners seeking an independent licensee that’s not in your face but provide quality support services. Their service and support is second to none and has allowed us to concentrate on providing our clients with a premium level of service.”

BEN DREW

Paradigm Principle

“Having been with Capstone for a number of years, one thing that really stands out is their willingness to help and can do attitude. These are qualities we really appreciate.”

FIND A CAPSTONE ADVISER

PROUDLY ASSOCIATED WITH