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What you need to know about SMSF investment classes

Smart investment decisions can turn a modest retirement into a generous one. For this reason, you should be aware that when it comes to self-managed super funds (SMSFs), there are many different investment classes available to you. Choosing the right mix can secure a better return, and therefore a better future for you and your family.

One of the most appealing aspects of an SMSF is the ability to make your own investment decisions. As a trustee, you dictate where and how your money is invested. An SMSF demands more hands-on involvement, but if you get your asset allocation right, it’s time well spent. Here we explore some of the more popular asset classes available, and how to take advantage of them.

SMSF investment classes

What investments can I choose from?

By far, the most common assets to invest in are shares, cash and property. These options are by no means the only ones out there, but they are continually the most popular. As of December 2016, the ATO found that shares, cash and property made up 72% of all assets in SMSFs.

Other asset classes you can choose to invest in range from trusts and other managed investments to debt securities. There are even some less common (and somewhat obscure options) such as collectibles (like jewellery and artwork) that are tightly regulated and not widely used.

The sole purpose of your SMSF is to provide you with an enjoyable retirement – so whatever investments you choose, ensure your decisions are based on what you think will deliver a good return. When choosing, it is imperative you consider strict ATO super laws; you must keep these investments separate from your business and personal investments.

Once you decide what assets you want, you need to decide your asset allocation. This involves deciding what percentage of your super is invested in which assets. A thorough investment strategy will help you to determine the best combinations. Asset allocation is a balancing act of risk and reward.

What assets should I invest in?

Your investment strategy should be well thought out and take your personal circumstances into account. When deciding asset allocation, we suggest you carefully factor in your age, patience and the level of risk you are willing to take.

If you are prepared to take more risks to produce profit, investing in bigger payout assets like shares and property can be a good option. This might be suitable if your members are older and want to increase a small balance quickly. Alternatively, if your Fund’s members would rather maintain steady and consistent growth, low-risk, low-return options, such as cash and fixed-interest securities, may be more suitable (large funds can afford to be more conservative).

Regardless of size, age or circumstances, most super funds continue to favour a combination of Australian and international shares, cash and local or overseas property. Diversification of assets is a common strategy, as the value of assets can change overnight. Don’t put all your eggs in the proverbial basket.

With careful planning and smart decision-making, an SMSF will allow you and your fellow members to take advantage of the most appropriate investment classes.

If you want to learn more about SMSFs, download an information pack today.

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