One of the challenges when trying to assess the adequacy (or inadequacy) of your retirement savings is to take into account your investments both inside and outside super.
Discussions about retirement savings often focus solely on the superannuation side of savings.
Such a focus on super is understandably to a degree. Reasonably up-to-date information of total super savings and the number of super accounts is readily available (PDF). And the vast majority of employees receive compulsory super contributions and therefore have at least some super savings.
However, the latest Personal Investments Market Projections Report, published over the past week by Rice Warner Actuaries, shows our total personal non-super investment assets reached $2.49 trillion by June last year – against $1.839 trillion in super at the time.
Particularly given the respective sizes of Australia’s dual savings sectors, it is critical consider both super and non-super investments when determining whether you are saving enough for retirement. And it is critical to consider super and non-super when setting an appropriate strategic or target asset allocation for the long-term.
It is clear that there is often a significant difference between the asset allocations and diversification of super and non-super investment portfolios.
On one hand, super fund researcher SuperRatings estimates that 60-70 per cent of members of large super funds (meaning non-SMSFs) hold their super in balanced default portfolios with their savings typically spread over at least the main asset sectors.
Yet Rice Warner calculates that almost half (48 per cent) of the non-super investment money is held in direct investment property – excluding the family home. This is equivalent to about 65 per cent of super assets.
Keep in mind that Rice Warner’s number-crunching was for super and non-super savings at June last year. The Sydney and Melbourne residential property markets in particular have risen strongly since then.
"A high proportion of private [non-super] wealth is dependent on the value of property,"Rice Warner emphasises, "which, in turn, is dependent on the current interest rates. This risk is correlated to other wealth, mainly the family home but also to investments in bank shares, which are dependent on profits from property investments."
Next week, Smart Investing will take a closer look at the asset allocation of SMSFs, including direct shares.
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Robin Bowerman is Head of Market Strategy and Communication, Vanguard Australia. As a renowned market commentator and editor Robin has spent more than two decades writing about all things investment. |
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