SMALLER FUNDS FAVOUR CASH

While SMSFs hold, on average, 24.8% of their assets in cash, this percentage tends to be a lot higher among smaller funds. The latest tax office figures, at June 2016, show that SMSFs with balances up to $500,000 tend to favour cash, holding 32% of total assets in cash and term deposits. Larger funds tend to prefer shares and managed investments. Smaller funds are also less likely to be diversified across a broad range of investments. In 2016, cash and term deposits were the sole asset held by almost one in 10 SMSFs. While cash is safe, it generates low rates of interest, and holding a high proportion of cash can also negatively impact a fund’s overall returns. As a guide, SMSFs with more than $200,000 in assets earned positive returns in the five years to June 2016. By contrast, those with total assets worth between $100,000 and $200,000 – which, as we’ve seen, are more likely to hold high levels of cash – earned negative returns averaging -3.3%.