SMSFs need to overcome GFC 'risk hangover'
When moving beyond ongoing high allocation to cash and fixed income, trustees of self-managed superannuation funds (SMSFs) should consider the benefits of diversifying into an Australian equity strategy.
That's according to Legg Mason Australian equities chief investment officer Reece Birtles, who said that the local economy is strong, operating in a low interest rate environment and has one of the highest dividend yields in the developed world.
The key reason why investors and SMSF trustees overlook equity markets is due to a risk hangover in investor psychology from the global financial crisis, he said.
Rather than dialing down their equity investment, Birtles said retirees require an exposure of more than 50 per cent to growth assets including equities to keep up with an inflation rate of 2.5 per cent over 20 years.
According to Legg Mason, less than one third of ASX300 equities offer cashflow in the form of strong dividends and low levels of debt. In addition, those companies that do offer high levels of dividends usually provide them tax paid.
Legg Mason stated that the value of dividend franking credits is often undervalued by the investment industry.
"Over a 15-year timeframe, dividend yield has outperformed returns from share price, and Australia's tax structure makes dividends doubly attractive for retirees, as dividend franking can add over 2 per cent to the yield for zero rate tax payers to further increase the dividend stream," Birtles said.
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