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I am 65 and still working. I recently rolled over my Superannuation to my newly established SMSF (Self-Managed Super Fund). I take a pension from the fund and salary sacrifice the taxable portion of my wages. I would like to know your thoughts on making investments. I am considering Australian ETF's for a portion of my investment and what percentage of my portfolio i.e ETF's, Shares, Managed Funds, Fixed Cash to make investments.
Before considering an investment strategy, it is critical to ensure you have the appropriate tax structures and strategies in place. It appears you are utilizing an Account Based Pension inside your SMSF (Self Managed Super Fund) which is extremely tax effective whilst also providing suitable flexibility given your age. This structure coupled with a salary sacrifice strategy will provide optimum tax outcomes.
Given you have the structure and strategy decision firmed up it is now time to focus on getting the investments decision right. I suggest you consider the following:
1. Have a clear objective: This initially involves confirming your investment timeframe. You have indicated that you are looking at the possibility of ETF’s (Exchange Traded Funds), Shares and Managed Funds. These are all growth style assets therefore we would normally advise having a minimum investment timeframe of 5 years to manage any short term volatility.
2. Set your Assets Allocation: This will largely be correlated with your objective ie. if you believe you may require access to the capital in the short term, you should consider holding more defensive and liquid assets like cash or fixed interest. If your timeframe is longer term, then assets that are more growth orientated will provide the potential for higher returns over time. It is widely agreed that risk and return are related therefore understanding your tolerance to risk is also important. There is always chance of a capital loss or negative returns when investing in growth assets.
3. Rebalance: Once your asset allocation is set (ie 60% Growth / 40% Defensive) a proven academic strategy is to rebalance back to your target weights annually. If markets have a positive year, your growth allocation will naturally increase, taking these profits and rebalancing back into a defensive asset class ensures you are not over exposed to markets.
4. Diversify: This final point is to ensure you manage risk. By holding various asset classes you are better positioned to manage risk. Some assets will zig when the others zag ie Australian shares may perform poorly over a period when international shares do well and vice versa. The primary message here is to not have all your eggs in one basket. ETF’s are a low cost and effective solution to achieve this.
Ultimately this all relates back to your objectives and choosing the best strategies to achieve them. Seeking professional advice from a member of the Financial Planning Association would ensure you make smart financial decisions specific to your situation.