Diversification in SMSFs paramount

The severe problems caused by the Trio Capital collapse shows why diversification in self-managed super funds (SMSFs) is so important, according to head of wealth management at Equity Trustees Limited, Phil Galagher (pictured).

The Government’s recent announcement that excluded SMSF trustees from compensation was further evidence why SMSF trustees needed to be careful of where they invested their money, he added.

“No SMSF should be so exposed to any one collective investment or asset manager that a collapse or complete lack of performance will cause major financial problems for the trustees, such as the loss of the major part of their savings,” he said.

Galagher said there was little anyone could do to prevent a major collapse of a total asset class, but no SMSF or investor should have hugely significant amounts with one fund manager or any one investment unless they fully understood all the risks.

Galagher felt that any SMSF trustee recommended to invest more than 10 per cent of total capital with any one asset manager or managed fund should get a second opinion.

“This doesn’t mean that an SMSF shouldn’t have a large amount invested in a particular asset class such as equities, but it shouldn’t be all in one fund or tied up in one stock,” he said

“Diversification is still the best protection against major losses of retirement savings,” he said.