Diversifying Your Superannuation

Diversifying Your Superannuation
Diversifying Your Superannuation - Point B Planning

Maximising your superannuation portfolio

Key takeaways (2 min read)

  • 38 percent of Australians invest in shares
  • Risk of putting all your eggs in one basket
  • Diversifying within different sectors of shares

Australians have approx. $2.9 Trillion was invested through superannuation assets, making Australia one of the largest holders of pension assets in the world. The Australian stock market, the ASX, currently holds $2 trillion in assets. This translates to approx. 38% of the population or more than 1 in every 3 Australians own some form of share. So, if you believe that you do not own shares, the reality is that you probably have some exposure, whether it’s via employee share schemes or within your super fund.

No surprise it is our favourite flavour when it comes to investing in stocks, with most Australians familiar with household names of the large retail banks and resource companies – CBA, ANZ BHP and Rio Tinto just to name a few. Aussies love Australian Shares! That is clear, however, is this a bad thing? It makes sense to invest in homegrown Australian Companies, shouldn’t we be supporting our own economy and local businesses?

Whilst most Australians invest in local shares because they have proven to be comfortable and rewarding, the reality is the local market may not provide the same level of growth over the next 20 years. The retail banks make up nearly a third of the ASX, leaving limited exposure to other sectors such as health, consumer discretionary and technology companies. Gaze a bit further offshore and it’s clear the big companies that we all love and use today, companies such as Amazon, Netflix and Facebook all largely operate in the US markets. Yes, you guessed it, if most of your money is invested in the local stock market you are likely missing out on the growth and diversification benefits of investing overseas.

Apart from shares, there are also investment opportunities in property, bonds and Alternative assets such as gold or infrastructure. These different types of assets typically move in different directions when certain events occur. By spreading your investments across these different assets may limit the ups and downs and provide a ‘smoother’ investment journey over the long term. In other words, provide ‘diversification’. For example, when interest rates go down, the return on bonds also goes down and thus typically leads to shares going. Thus, by holding an appropriate amount in both, should reduce risk and average out returns over the long term.

In summary, people often think diversification may investing in different assets completely, such as cash, term deposits, property, and shares. Well, this is true, there is also additional diversification at the stock level as well. Meaning the rule of not putting all your eggs in one basket, also may mean not putting all your investments simply into banks.

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