SMSFs have retained their allocations to cash reserves despite a fall in term deposit and savings interest rates and should be rethinking their exposure to this asset class, a private credit investment manager has stated.
Vado Private founder and responsible manager Simon Arraj noted the most recent ATO Statistical Overview indicated that of the $1.02 trillion of SMSF assets under management, $161.4 billion or 16 per cent was in cash investments as at 31 December 2024, despite a drop in savings account returns.
Arraj pointed out new data from the Reserve Bank of Australia showed three-year term deposit rates fell to 3.25 per cent a year in February, down from more than 4 per cent a year earlier, while online savings account rates dropped to 1.7 per cent from 1.85 per cent.
“Compared to inflation at around 2.5 per cent in December 2024, real returns on bank online savings accounts are now well below zero and the bottom line for cash investors is that savings rates could fall further this year if official rates fall again,” he said.
“In such an environment, SMSFs should be rethinking their cash investments and equity holdings too as share market volatility returns dramatically under the Trump US government.”
He added SMSFs also continued to hold high levels of shares and property, but had low allocations to fixed-income investments and a more balanced approach was still needed.
Pointing to the ATO statistics, he highlighted SMSFs invested $277.6 billion in Australian shares, which was 27.2 per cent of all SMSF assets, and $168 billion in direct property, which accounted for 16.5 per cent of total assets, while fixed income investments represented only $11.7 billion of assets.
“With share markets correcting, SMSFs would benefit from a more balanced approach to asset allocation, including greater fixed-income allocations, including to private credit. These investments have historically offered attractive yields, which is very important to all investors, particularly as equity markets fall,” he said.
“Private credit returns are robust at a time when falling term deposit and savings account rates are eroding the real return investors get on investments. For SMSF investors seeking higher yield, now is the time to consider reallocating some of their assets to private credit investments.”