By spreading your investments across different types of asset and investment markets, also known as diversifying, an SMSF trustee can better position themselves for a secure retirement.  A diversified portfolio can have the benefit of reducing volatility and short-term downside investment risks, preserving capital and in the long-run, benefits of higher overall returns.

With interest rates at record lows and all-round economic uncertainty, it is important to ensure your SMSF investments are meeting your retirement goals.

Unfortunately, many SMSFs do not diversify their investments nor do they take an active approach in changing their investments as market conditions change.

Another problem with diversification is the amount of SMSFs with half or more of their funds invested in a single investment. Other trustees say they primarily invest in shares to achieve diversification in their SMSF, while just a quarter say they invest in at least four asset classes to achieve this.

How can you diversify?

If you are worried your SMSF is not diversified enough, here are some simple the steps you can take:

  • Have a clear and demonstrable reason for the choices you make.
  • Have an investment strategy in place to outline how you will achieve your goals.
  • Review your investments regularly and compare them against your investment strategy.
  • Minimising investments to one asset class – such as fixed interest or property.
  • Ensuring your share portfolio is spread across different industry types and sectors.
  • Look into geographic diversification such as international shares or property investment in a different state for example.
  • Maintaining enough cash to take advantage of investments quickly during volatile times.
  • Look at alternative ways to invest – such as exchange traded funds and listed investment companies.

Having an appropriately diversified portfolio can impact quality of life in retirement by allowing you to ride out the worst of any economic volatility.  If you are not confident in selecting your own diversified investments, we recommend you consider engaging a financial planner for specific assistance in managing a suitable investment strategy tailored to your needs.

How can we help?

If you are after general diversification advice, please feel free to contact us so we can discuss your SMSF requirements.