Trustees who keep the bulk of their self-managed super fund (SMSF) assets in property could be making a dangerous investment move, according to HLB Mann Judd.
Property has been a popular asset choice for SMSF holders due to volatile market conditions and investor confidence remaining low within the domestic market.
“There seem to be a lot more people investing in property and people who traditionally would have shied away from shares are now looking at their SMSF to hold property,” HLB Mann Judd SMSF specialist Andrew Yee told InvestorDaily.
“Before, people didn’t have enough capital to buy a property in their fund, but now that a superfund can borrow – it makes it easier for them,” he said.
Mr Yee warns, however, that the perceived benefits of holding property in unstable market conditions could be detrimental to retirement savings.
“It can be dangerous having just property in your SMSF as it is an illiquid asset and not easy to sell,” Mr Yee said.
“If you’re drawing a pension, you need to be able to draw the minimum amount from your pension every year, so you have to make sure the income from the property is able to provide for that.”
According to HLB Mann Judd, having a diversified portfolio within an SMSF trust is one strategy for weathering unstable market conditions while still accumulating wealth for retirement.
With investors looking to equity markets on the back of anticipated lower interest rates in the year ahead, Mr Yee said it is likely this shift will occur in the SMSF sector.
“A lot of people in SMSFs are holding cash at the moment, but with the cash rate so low, many might start looking at diversifying out of cash,” he said.
“If the share market has a run this year it may provide an impetus for super fund investors to move out of cash and into other markets, such as shares.”
By Rachael Micallef