Diversification, Asset Classes, and Your SMSF

Do you have a Self Managed Superannuation Fund? Are you one of the 17,700 trustees who have received a letter from the ATO questioning the asset diversification of your fund?

The ATO has sent a letter to 17,700 trustees of Self-Managed Superannuation Funds (SMSF) questioning whether the assets within the Superannuation fund are too concentrated within one asset class rather than diversifying the investments across a number of different asset classes to spread or minimise any potential risk?

The 17,700 people contacted by the ATO hold 90% or more of the funds’ assets in one asset class such as property.

It is important to note that you do not need to have diversity in your fund but you need to prove that the lack of diversity is an active investment strategy. For example, if you are in your 60’s or 70’s and the only asset in the superannuation fund is a geared property than you need to consider, for example, how will that debt be paid off?  How will the superannuation fund pay your retirement benefits if it has debt commitments? Are you planning to make contributions to the SMSF over time, prior to retirement, in order to extinguish this debt? Are you considering making a downsizers contribution? A downsizers contribution is where you sell your home in the future and moving into a more modest dwelling and contributing the surplus funds to your superannuation fund. Note conditions apply to making a downsizers contribution.

Clearly your answers to the above questions and your superannuation investment intentions are very different if you are say a 30 or 40 year old on a large wage making sizeable concessional contributions to your SMSF.

The important message here is that you must have an investment strategy that is appropriate for the members of the fund and you must be able to justify your strategy if the ATO ask.

If you require any assistance with your Self Managed Super Fund, or are looking for a financial planner in sydney to help build your wealth, get in touch with Peter Quinn by filling out our contact form, or give us a call on +61 2 9580 9166 to book an obligation free appointment

The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it.  It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.