Many people choose only Australian stocks and managed funds and consider this makes their SMSF investment portfolios diversified. Shayne Sommer, Private Client Adviser at Shadforth Financial Group, indicates that, in some cases, they only hold a small group of securities. Yet, from a global perspective, limiting one’s investment universe to a handful of stocks, or even one stock market, is a concentrated strategy with possible risk and return implications. Shayne and her colleagues from Shadforth are presenting on the topic Non-Property Investment: How to Create Value for Your Clients at our SMSF Day 2019 this September.
The picture (Image 1) offers a comparison of investing only in the local market, as represented by the S&P/ASX 300 Index, and structuring a globally diversified portfolio that holds assets in markets around the world.
Diversification across and within asset classes makes for a smoother ride, lessens the impact of risks associated with individual listed companies and gives you a greater chance to achieve the returns you seek. To keep you on track and to ensure you don’t take unnecessary risk we regularly rebalance your portfolio.
Australian annual returns by market index
As you can see from the graph below, you never know which market segments will outperform from year to year. By holding a globally diversified portfolio, investors are well positioned to capture returns wherever they occur.
Image 1 In Australian dollars. Data is the annual return to 31 December 2018. Data used for each asset class is as follows: Australian Large: S&P/ASX100 Index (Total Return), Australian Small: S&P/ASX Small Ordinaries Index (Total Return), Australian Value: S&P Australia BMI Value Index (gross dividends), Property: S&P Global REIT Index (gross dividends), Global Large + Mid: MSCI World Index, (gross dividends), Global Small: MSCI World Small Cap Index (gross dividends), Global Value: MSCI World Value Index (gross dividends), Cash: Bloomberg AusBond Bank Bill Index, Emerging Markets: MSCI Emerging Markets Index (gross dividends), Fixed Interest: Bloomberg Barclays Global Aggregate Bond Index (hedged to AUD). S&P data © 2019 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. MSCI data © MSCI 2019, all rights reserved. Bloomberg Barclays data provided by Bloomberg. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio
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This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from a financial adviser and seek tax advice from a registered tax agent. Information is current at the date of issue and may change.
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Shayne Sommer, Private Client Adviser at Shadforth Financial Group, maintains personal advice relationships with private clients as well as provides advice to corporate members and facilitates seminars for corporate clients. Shayne also provides technical training to our team across the country. Shayne holds a Bachelor of Arts (Journalism/Psychology) from the University of Queensland, as well as a Graduate Diploma of Financial Planning. Shayne is a Certified Financial Planner® practitioner and Life Risk Specialist® professional with the Financial Planning Association of Australia (FPA). Shayne’s background in communications and psychology allows her to communicate effectively to individuals and groups about a broad range of topics, from basic financial planning concepts to the challenging technical niches within the industry. Shayne also contributes to the Certified Financial Planner® certification program via the FPA and Deakin University.