New industry research has indicated self-managed superannuation fund (SMSF) portfolios looking to negate longevity risk and investment risk can be helped via the inclusion of direct property.
The report was put together by Charter Hall and Strategy Steps and was done to challenge the conventional behaviour of investors coping with the aftermath of the global financial crisis while also addressing their own investment needs in retirement or pension phase.
“The real objective here is to try to somehow manage the longevity risk which suggests the investor should have more money in growth assets to get the most return and manage the investment risk that suggests they should have less money in growth assets,” Strategy Steps director Assyat Avid said.
“So effectively you’ve got these two objectives within the pension phase which is pulling the investor in opposite directions. So it becomes a real conundrum as to how to structure a portfolio to help manage those two opposing risks,” she explained.
The report examined two types of portfolios to help the investor in this situation. The first used two separate portfolio segments that were made up of a cash component that would provide income and a growth portfolio to provide capital growth.
The second scenario looked at employing a balanced portfolio that included a 70 per cent allocation to growth assets.
In both situations the inclusion of direct property boosted the returns of the chosen portfolios.
However the advantage of investing in direct property is not all about capital growth, according Charter Hall Direct Property chief executive Richard Stacker.
“Property traditionally has had a higher yield than other growth asset classes like shares,” he said.
“Property also tends to have a number of tax deferred benefits and that normally comes from the depreciation allowances that exist and they tend to be accelerated in the earlier part of the life of a property. So the income you get from a property tends to have a higher tax deferred amount,” Stacker explained.
“Investors should be realising the market cycle is ripe, particularly in property, to be reconsidering their allocation to overly defensive asset classes.”
