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CFL Financial location Level 9, 360 Queen Street Brisbane, QLD 4000
fax CFL Financial 07 3328 8999
phone CFL Financial 07 3328 8988
Email CFL Financial mail@cflfinancial.com.au

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The importance of diversification in an SMSF

Posted on Aug 24, 2016 by CFL Financial

Self-managed super funds (SMSFs) that are not well diversified are quite risky investments since they aren’t as protected as they could be against shocks and volatility in the market.

Diversification aims to maximise an individual’s return by investing in different asset classes that react differently to the same event. Although it does not guarantee avoiding a loss, diversification is an important component of reaching long-term financial goals while minimising risk.

Diversification can control a super fund’s risk, as the better performing asset classes will help offset the others that aren’t performing very well. It also provides the super fund with the opportunity for long-term growth, as the portfolio is exposed to asset classes with strong growth potential.

SMSF trustees that don’t have the appropriate blend of different asset classes in their fund risk their portfolio experiencing increased and unnecessary volatility. Well-diversified SMSFs include all the major asset classes including cash, fixed interest, shares and property.

The first step to ensuring an SMSF is properly diversified is to consider the exposures the fund currently has to the major asset classes and assess how diversified the fund is. Trustees must then engage in the process of working out which asset classes the fund requires to be properly diversified.

For many SMSFs, the idea is looking to invest in other asset classes that could help improve the fund’s diversification. These may include assets that have a negative or low correlation with one another.

Those concerned about the diversification of their fund need to review their fund according to their investment strategy to assess whether it makes sense to increase diversification. However, it is important to work out any capital gains tax consequences before selling down any assets to buy investments to improve a fund’s diversification.

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Retirement-in style

Retire in style checklist™

There are a few reasons why Business Owners need a Retire In Style Checklist

If you’re a successful and Motivated business owner, and want to set yourself up for retirement, this guide would be perfect for you. My clients who follow these 3 simple steps live with comfort, security and the peace of mind that financial success brings.

Retirement-prosperity-thumbnail

The Retirement Prosperity Guide™

Make sure you don’t miss out on the Retirement Prosperity Guide

If you’re a busy Professional and you feel like you’re not building your wealth fast enough and you want smarter ways to utilise your cash flow, this guide is perfect for you. Clients who have used our strategies have the peace-of-mind knowing they have a ‘game plan’ for financial abundance.

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Phone: 07 3328 8988
Fax: 07 3328 8999

Office Location:
Level 9, 360 Queen Street
Brisbane
QLD 4000

Postal Address:
GPO Box 2468,
Brisbane,
QLD, 4001

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