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Investing your SMSF into shares

Tags Retirement Planning
Category SMSF
 Investing your SMSF into shares

It’s natural to want to get the most ‘bang for your buck’ especially when it comes to investing in your retirement. However with recent changes in interest rates, the Aussie stock market and uncertainty with the property market, it can be hard to know the correct option. Guest writer Anthony Fensom, discusses some of the pro’s & con’s of investing in shares.

Australia’s sharemarket has posted its best start in 30 years in 2013, and self-managed super funds (SMSFs) are enjoying the gains. The benchmark S&P/ASX200 index gained nearly 15 per cent in calendar 2012 to reach 4648. And after breaking through 5200 this year, market watchers are expecting further gains. However, before putting all your hard-earned super funds into equities, it’s important to consider the potential risks.

The importance of timing

Historically, shares have outperformed other investments over the longer term, although timing is important. The latest Russell Investments/ASX Long-Term Investing Report found that Australian shares outperformed residential investment property, fixed interest and cash over the 20-year period to 31 December 2011, returning 9 per cent a year and 7 per cent at the lowest and highest marginal tax rates. However, those who bought at market highs would not have enjoyed the same gains. Despite recent rises, the S&P/ASX200 index is yet to regain its November 2007 peak of 6829.

Investment cost

Shares are a flexible and low-cost investment compared to the cost of buying a property or corporate bond. Unlike property, it is possible to sell and gain the proceeds within three days, while the usual settlement period for residential property is 42 days. Another benefit is that the minimum amount of shares to be purchased is usually only $500 for a new equity investment. As such, it is possible to diversify across a number of sectors at relatively low cost, compared to the cost of diversifying direct property.

Tracking your investment

Unlike property, it is possible to monitor the value of your shares in real time, and listed companies are required to constantly update the market on information relevant to their share price. Obtaining such information is much more difficult for property, where building, environmental and zoning changes can occur without investors being made aware.

Volatility a worry?

“If you are a person prone to worry then you may not be suited to shares, as they can move by 1 to 2 per cent in a normal day or in extremes up to 10 per cent,” says Liam Shorte of NextGen Wealth Solutions. Australia’s sharemarket tends to follow the lead of larger overseas markets, with any sell-off on Wall Street usually copied in Australia. By contrast, property prices tend to move less frequently, while it is possible to buy bonds or invest in term deposits with fixed returns. “Be wary as the herd can turn quickly and you can be left behind,” warns Tom Crommelin, Client Adviser at RBS Morgans. “Statistics show that most retail investors buy when share prices are high or close to their peak, and sell when they’re low or near the bottom.” Instead of jumping in, consider allocating a proportion of your funds to shares, with the majority in “blue chips” such as banks, and a minority in more speculative investments. That way, it can be possible to benefit from the market’s gains without losing your shirt in a downturn.