Framing SMSF asset allocations
Self-managed super funds (SMSFs) are, by their very nature, tuned towards providing their members with income streams during retirement, according to John Wilson, head of PIMCO Australia.
"In a sense, the very binary asset allocations of a lot of SMSFs have proved that," he said.
"They have one of two attributes; either they've got a really big property exposure because it's an individual who's got some investment properties or a business property that they've put into their self-managed super fund, and the balance of their portfolio is cash.
"Or there's the other, which is the investor portfolio where it's an individual who's got a large direct equity portfolio, and he's got 25 to 30 per cent in cash," Wilson added.
"So while there hasn't yet been much thinking with regard to income assets, I think that that's all to come."
Wilson said that if there was one area where pure income strategies would see increased demand, it was in SMSFs and the high net worth individuals that much of the sector was comprised of.
"They're typically in self-managed funds because they've been advised there by an adviser," he said.
"And most have arrived at that place where they've realised that they don't need to push the portfolio super-hard for returns.
"They've accumulated a sufficiently large sum that the agenda is now as much around capital preservation as it is around capital growth."
However the point, according to Wilson, is that the post-retirement income conversation is largely dictated by the balance a member has access to.
"If a member's only got $200,000 in retirement and he generates 5 per cent per annum through pure income strategies, that's $10,000," he said.
"That goes very quickly if you take a flight overseas and have accommodation for a month; it's not going to really meaningfully impact your lifestyle.
"So you've then got two choices; you blow it, you buy something nice; or you maintain a portfolio invested in growth assets because if it can return 15 per cent per annum, fantastic!
"But the member who's got $1 million in retirement at 5 per cent, that's $50,000 and in a tax-free environment, that's $4,000 a month," Wilson continued.
"At that point, you'd probably want to conserve that sum so that you've got a high degree of probability around generating that sum year in and year out."
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