SMSFs missing out on benefits of bonds
Self-managed superannuation funds (SMSF) members could boost their returns by diverting a greater proportion of their asset allocation into bonds, according to Credit Suisse research analysts.
The analysts found that SMSF members (selfies) were typically conservative equity investors, who focused on high dividend paying stocks that generally provide low volatility.
The researchers reported that 43 per cent of SMSF assets was invested in equities, while 28 per cent was in cash, and a further 24 per cent was invested in property.
Although this investment allocation has provided selfies with "respectable" post-tax returns, Credit Suisse reported that it "leaves them vulnerable to bouts of market volatility in the future" and recommended that SMSFs should focus more on bonds than cash.
"We think cash is a poor replacement for bonds. Bond returns are usually negatively correlated with equities which help balance portfolio returns — especially during brutal equity bear markets," the analysts said.
"An allocation of 50% Aussie equities and 50% 10-year Aussie government bonds has lost money in only three of the past 34 years.
"One hundred dollars invested in June 1979 is now worth $4740. Meanwhile, cash tends to have a zero or even a small positive correlation with equities so it does not provide the same ‘portfolio relief' during stock market sell-offs.
"An allocation of 50% Aussie equities and 50% cash (term deposits) has lost money in five of the past 34 years. One hundred dollars invested in June 1979 would now be worth ‘just' $2820. As retirement age looms closer we imagine selfies would not want their portfolios overly exposed to a single asset."
Recommended for you
AMP is to launch a digital advice service to provide retirement advice to members of its AMP Super Fund, in partnership with Bravura Solutions.
Unveiling its performance for the calendar year 2024, AMP has noted a “careful” investment in bitcoin futures proved beneficial for its superannuation members.
SuperRatings has shared the median estimated return for balanced superannuation funds for the calendar year 2024, finding the year achieved “strong and consistent positive” returns.
The second tranche of DBFO reforms has received strong support from superannuation funds and insurers, with a new class of advisers aimed to support Australians with their retirement planning.
