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Issue 6: Asset Allocation and your SMSF, where to start? (some homework for the holidays – Part 1)

December 2019

Many of us will have heard the term ‘diversification’ and some will be familiar with the expression that it’s ‘the only free lunch in investing’.

In my view, diversification, how you allocate investment assets coupled with an understanding of cash flow and the power of compounding make a pretty good meal!

Simply put diversification means spreading your investments across a range of investment asset classes; not having all in one class – such as, just in cash, property or shares and investing across a range of geographical locations beyond Australia to overseas markets, such as Europe, US and emerging markets in the appropriate proportion for each member of the SMSF.

As with much of the background to this series of articles, the questions asked by investors at education events that I was involved with while at ASX has provided the catalyst to write them. In this case, the question was ‘what should my asset allocation be?’

My response to the question, was typically, ‘I cannot give you advice, but why don’t you start by looking at your current asset allocation?’ I was surprised the number of time investors and SMSF trustees were unaware of the asset allocation of their fund.

So, if you do not know the answer, here is a way to start to work it out and with the ATO writing to over 18,000 SMSF trustees regarding SMSFs lacking diversification, it may be timely.

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Ian Irvine – Guest Contributor

Ian has been a keen investor for over 40 years and can draw on his experiences from both investing on his own behalf and also having worked in financial services for more than 30 years. Over this time, he has seen many changes that impact investors’ attitudes to in what and how they invest.

He started his career in what is now referred to as fast moving consumer goods (FMCG) or grocery, working for an Australian margarine manufacturer. In 1986, he was recruited to Westpac around the time of deregulation of the sector, where he spent 10 years before taking a role at AMP and then with ASX for 14 years up to the end of 2017. He continues to be involved with ASX; working on their educational programs.

In 1996, he and his wife established their own SMSF and again the experience and lessons learned regarding managing an SMSF over the years have provided him with many insights and ideas. He enjoys sharing these with others where these are helpful and always suggest that if an investor or SMSF trustee is unsure, that they should seek appropriate advice from a licenced professional.

Ian holds a B. Com (UNSW), and lives in Sydney and enjoys travelling to and meeting investors and SMSF trustee at the educational events with which he has involvement with from time to time.