Diversification requirements for SMSFs

The ATO has identified approximately 17,700 SMSFs where investment strategies may not meet the requirements under regulation 4.09 of the Superannuation Industry Supervision Act (SISA). Records show these SMSFs may hold 90% or more of funds in one asset, or a single asset class.

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. This can help to control a super fund’s risk, as the better performing asset classes will help offset the others that aren’t performing very well. Diversification 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.

To help ensure an SMSF is properly diversified, 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.

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Becoming socially conscious of where you super invest

February 28, 2020

Whether you are a newcomer to the workforce or have been working full time for 30 years, you must have come across the concept of superannuation. Chances are, you’ve already been steadily building your retirement funds in one of the 500 Australian superannuation funds but are still unfamiliar with how exactly your super is being managed and where your super fund is investing your money in.

With the beginning of a new decade and social issues on the rise, it is time to take a more conscious stance on what you are doing with your super and what causes you are supporting through the employment of your money through your super fund.

A recent investigation into Australian super funds by the Australian Centre for Corporate Responsibility (ACCR), released in February 2020, found that 50 of the largest super funds in Australia are proxy voting against local climate-change initiatives. These organisations are instead approaching climate change from a global perspective, whilst ignoring more pressing domestic challenges to reduce carbon emissions..

The lack of support from Australian super funds for localised climate action is growing problematic, as Australia fails to address its appalling record on carbon emissions and is falling behind new-age global goals to fight against environmental degradation and climate change.

In contrast, some of Australia’s most environmentally and socially conscious super funds lack the reputation to attract long-term users. To look for more environmentally friendly Australian super funds, the Responsible Investment Association Australasia (RIAA) grades supers based on their ethical contributions and makes this information available to the public.

Instead of mindlessly joining Australian super funds that are neglecting growingly problematic domestic climate change issues, Australians need to become more conscious of our indirect actions and super investments. Rather than investing in an unethical super fund, looking into self-managed super funds may be another good option. We need to learn to take matters into our own hands and become more socially conscious of where exactly our money goes.

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