SMSFs allocating record amounts to cash investments

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SMSFs are placing a record amount into cash investments, in spite of falling interest rates, new figures show.

Figures from the Australian Taxation Office show SMSFs held $157.7bn in cash and term deposits for the June 2015 quarter, representing around 27% of all SMSF assets. The figure was up from $155.7bn in the March quarter.

In contrasts, SMSFs invested less than 1% of their portfolios - to the tune of $1.8bn - in international shares. Another $533m was in offshore managed investments and $329m in offshore property.

Brokerage firm Invast claimed the trend was exposing SMSFs to huge risks.

“SMSF portfolios often lack any basic degree of diversification into overseas assets given their huge concentration on Australian equity and cash investments. The problems with this are two fold. First, investors are missing out on often superior returns offered by offshore financial markets, with the S&P/ ASX 200 well underperforming the US stock market, and underperforming most European markets over the past year," Invast Australia Investment Committee chair Gavin White said.

White said SMSFs were missing out on sectors such as healthcare and technology which weren't well represented in the ASX/S&P 200, while being weighted too heavily toward bank and resources shares.

"“The second problem with not diversifying offshore is that Australian SMSF investors are missing out on currency depreciation benefits.  If SMSFs have offshore investments denominated in offshore currencies such as the US dollar, to the extent that the Australian dollar falls, investors will gain some returns back on their unhedged international investments, which works to offset losses on their Australian investments if the local share market falls," White said.