SMSF trustees need to tread a careful path between avoiding the trap of constantly switching shares to follow current fads and of remaining stuck in a portfolio, set perhaps years ago. This particularly is a problem when share valuations are at an extreme and when there might be some significant changes in the market.
Managing potential risks
We don’t know when the markets will change – though we can keep an eye out for warning signs – but investors can look at their portfolios’ upside and downsides on a “what if?” basis. Banks and institutions do this regularly; it’s called risk management.
While Switzer readers have varying share portfolios and allocations, the ATO’s figures tell us that, on average, SMSFs have below average or virtually no overseas shares compared with the large institutional funds. These patterns might be explained by risk aversion, following the GFC fright and the persistent high $A relative to the $US, which hobbles gains from US-denominated investments.