Powered by MOMENTUM MEDIA

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.

SMSF trustees cautioned on large annuity allocations

While annuities can provide low-risk, steady return in a diversified portfolio, one adviser has expressed concern about liquidity being compromised where a portfolio has excessive allocation to annuities.

Speaking to nestegg.com.au’s sister publication SMSF Adviser, Visis Private Wealth partner Chris Smith said although there are many benefits to investing in an annuity, such as security around investment capital, SMSF practitioners need to ensure their clients are aware annuities can potentially be inflexible given that they are usually for a fixed term.

“You have to evaluate a balance between locking all your capital into an annuity versus all the other requirements for which you might need an SMSF in terms of emergency funding or health issues,” said Mr Smith.

“Also, there’s an opportunity cost that you’re missing out on by having a diversified allocation and a mix of investments.”

Advertisement
Advertisement

Given that the actuaries working for the annuities provider have done all the calculations, investors are paying for certainty and paying for guaranteed returns so therefore SMSF trustees are likely to get a lower return on capital because it tends to be lower risk.

“Therefore, it’s going to give you a lower yield of return than you would otherwise get with some of your other investments,” Mr Smith said.

SMSF trustees cautioned on large annuity allocations
nestegg logo
subscribe to our newsletter sign up
FROM THE WEB
Recommended by Spike Native Network
Bronson - I love you Brenton please write more....
The Patriot - It seems madness to lower interest rates when we know that we will need room to drop later as the economy slows on back of China slowing. If wages do.......
Anonymous - Does the RBA think?....
Anonymous - Bloody mad. Much cheaper and better and more fun to learn to cook for yourself. And, if you are time pressed, a crockpot set up the night before and.......