Many SMSF trustees particularly those nearing or in retirement, are choosing bank accounts as their investment of choice.
A large number of self-managed superannuation fund trustees chose to forsake the higher returns from the equity market during the September 2012 quarter and keep their money in the bank.
Why? Because they are happy to earn low yields and preserve their investment capital.
Given the choice of a stable, middling return, the low returns from cash in the bank are being taken over the chance for potentially higher, though more volatile, returns from shares.
And given that equities generally have returned little, or negative returns (depending on your starting reference point) in recent years, the relatively boring returns of 3%-5% achieved from cash have been, well, money in the bank. This is despite the good fully franked dividends yields over time from the major banks and the likes of Telstra, which are delivering average returns above 6%
It seems that many SMSFs actually looked to be pulling money out of equities and property during those three months, even as the market was screaming ahead.
More and more investors, clearly, prefer to stick with cash-like returns. “A 99.9% probability of a return of 4% beats a potential return of 15%, that might become minus 5%”.
The reason that many investors retain a high cash weighting is because they fear world growth asset downturn in the near future, and the number one imperative is preservation of capital.
Terms such as the China questions and the fiscal cliff are ringing alarm bells.
Former Treasury Secretary Ken Henry is one of many who believe that Australian investors are, and probably always will be, massively overweight in equities. We’re taking too much risk, says Ken, who believes that we should have less money on the casino table, and more in the “surer” things of cash and bonds.
By world standards, Australian super investors have a big appetite for risk. The rest of the world, apparently, is far more evenly weighted into fixed interest and cash than we are. We love our property and we love our shares.
NOTE: This love of equities with good returns is likely to be reinforced if interest rates continue their decline.