subscribe to our newsletter sign up

Investors warned on vulnerability in portfolios

In an effort to protect themselves against volatile markets, a global financial services company has said SMSF trustees should look to bonds to diversify their portfolios.

According to Credit Suisse’s Australian Investment Strategy Research Report June 2014, SMSFs continue to remain “grossly underweight” in bonds.

“This is obviously because fixed income instruments are not as readily assessable to SMSFs as other assets are,” Credit Suisse said.

Credit Suisse added that it has been suggested cash is high yielding enough to replace bonds in an Australian portfolio.

“[However] we think cash is a poor replacement for bonds. Bond returns are usually negatively correlated with equities which help balance portfolio returns, especially during brutal equity bear markets,” it said.

“An allocation of 50 per cent Aussie equities and 50 per cent 10-year Aussie government bonds has lost money in only three of the past 34 years.”

Credit Suisse said that meanwhile cash tends to have a zero, or even a small positive correlation with equities, so it does not provide the same “portfolio relief” during stock market sell-offs.

“As retirement age looms closer we imagine SMSFs would not want their portfolios overly exposed to a single asset, our concern is that important investment lessons like this are often learnt too late,” Credit Suisse said.

Investors warned on vulnerability in portfolios
nestegg logo
subscribe to our newsletter sign up
FROM THE WEB
Recommended by Spike Native Network
Anonymous - Why does this get all the media attention when in reality it affects very few and the charges are minimal? How about reporting on all the ISA TPD.......
Anonymous - This got to be the smartest comment this century ?!....
nan - So what do you do if you are being ripped of and then can't afford the body corporate fees....
MarkL - The banks may not charge dead people any more ........... but they won't charge them any less either!....