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When setting up a SMSF (in accumulation phase), is it better to have ETF/LIC style investments, or just direct shares, or a good combination of both? (Assume approx $500k under management).
I can see the attraction of ETF/LIC for “instant diversification” and ease of investment, but most of the discussion seems to be on selecting a portfolio of growth or income direct shares. Is there a good combination of ETF/LIC vs shares?
Interested in views on the “right” combination.
A: Thanks for the question.
There is no ‘right’ combination – it really depends on you and your fund members - “how much interest you have in investing”, “time”, “expertise” and how much you want to influence your fund’s tax outcomes.
ETFs are passively managed and arguably low cost. Your pre-tax return will be slightly lower than the index.
LICs are generally actively managed. Major broad market cap LICs like AFIC or Argo have performed very credibly. If you can buy at or below NTA, you may over the long term do marginally better than index. Small cap LICs have a mixed performance – some do really well, others not so well.
Direct shares – more chance to accommodate any growth or income biases – and influence after tax returns.
Reading between the lines and looking at your question, sounds like you might be more comfortable in a core/satellite approach:
