“Given recent market volatility that’s not surprising, but you worry about investors trying to time markets rather than staying on course with a long-term asset allocation plan.”

The survey found that the so-called ‘wall of cash’ held by SMSFs had increased markedly as wary investors say they are waiting for the return of more favourable market conditions before reallocating funds to growth assets.

Mark Johnston, Principal of Investment Trends said, “This report shows total cash and cash products held by SMSFs in Australia has grown by $40 billion since May 2009 to $113 billion.”

The survey also identified the level of ‘excess cash’ held by SMSFs, defined as funds that would normally have been invested in other investments/assets, but were being held in cash due to recent market volatility.

As overall cash holdings jumped significantly over the last couple of years, excess cash holdings have remained relatively stable in terms of value at $39 billion.Excess cash now represents 35 percent of SMSFs’ total cash holdings, down from 53 percent in May 2009.

“Behavioural finance studies consistently highlight that investors driven by short term emotional influences will often buy when markets are high and sell out when they are low,” said Mr Bowerman.

“A more conservative asset allocation may be absolutely right for an investor’s circumstances, however it is vital for investors to remember that a diversified, low cost approach to investing that maintains market exposure during turbulent trading days and looks past the short term volatility has the greatest opportunity of investment success,” he said.

He referred to long term figures to illustrate the point.

“When you look at 20-year rolling returns since the 1950s using monthly data*, the median annual Australian sharemarket return is 12.9 percent. The worst 20-year return for the sharemarket was 8.4 percent for the 20 years to the end of February 2009.

This means that SMSF trustees turning more to cash and term deposits are consciously or otherwise taking a pessimistic outlook on the future growth of our economy and major Australian companies.

“Obviously we have experienced a lot of short term volatility, and there is uncertainty about where the markets are going next. Recent events, however, should reinforce the view that investors are concerned about many things that simply are not within their control such as geopolitical affairs, markets and economies.

The nationwide Vanguard/Investment Trends survey of more than 3,000 SMSF trustees showed that SMSF investor concern has been tracking more or less to market movements. The sideways movement of the market since 2009 peppered with a number of corrections has caused investor concern levels to remain high. At the same time, SMSF investors’ growth expectations of the Australian All Ordinaries Index has moderated – from a rise of 11 percent over 12 months expected in 2009 to a rise of just 7% over 12 months expected in 2011.

While SMSFs’ total allocation to direct shares grew from 37 to 40 percent year on year, cash and cash products jumped from 21 to 26 percent of total SMSF assets in the same period.

* 20 year data prepared by Andex Charts Pty Ltd

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