SMSF’s reach record $558.6bn – still heavy cash

Arian Niron

Arian Neiron

Fresh data released this week shows Australian self-managed superannuation funds (SMSFs) have invested record amounts in cash investments despite low returns and the prospect of rising inflation. This may negatively impact their ability to grow or even protect their wealth, according to Arian Neiron, Managing Director of Market Vectors Australia.

SMSFs cash investments rose to a record $156.2 billion during the March 2014 quarter, a 1.6% increase from $153.7 billion in the December 2013 quarter. Those cash holdings represented 28% of all SMSF assets, which hit $558.6 billion in the March quarter, up 2% from $547.6 billion in December 2013, according to data released this week from the Australian Taxation Office (ATO).

The ATO data also reveals SMSFs had invested $179.5 billion in listed shares, a rise of 2.7% from $174.8 billion in the December quarter. Listed shares accounted for 32% of all SMSF assets in the March quarter.

“Given that inflation could head higher and cash rates could remain steady SMSFs are risking value erosion by being so heavily invested in cash”, Mr Neiron said.

“Annual inflation was 2.9% so the real returns on cash investments are close to zero, add in tax and you are in negative territory. The Reserve Bank has this week indicated that it is not likely to raise interest rates anytime soon and banks have lowered rates on term deposits. SMSF investors should consider their options to protect against rising inflation,” said Mr Neiron.

“One positive aspect of the data released by the ATO is that it reveals the quarterly growth rate in cash investments has slowed to 1.6% from 2.1% a year earlier, highlighting that SMSFs’ appetite for cash investments could be waning” he said.

The ATO data reveals SMSFs had invested $20.4 billion in listed trusts (including Exchange Trade Funds) during the March quarter, up 2.3% from $19.9 billion in the December quarter.

“SMSFs are adopting ETFs at a greater rate due to their instant diversification via a hassle free trade all with the benefit of liquidity and full transparency. Through diversification, ETFs may help SMSFs to reduce risk in their portfolios. They offer lower fees, full transparency of holdings and potential tax efficiencies, all of which are important to SMSF trustees,” said Mr Neiron.


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