Australia has, of course, a dual personal investment/saving sectors: assets held inside and outside super.
The super side gets much attention from politicians, interest groups and the media, as illustrated in the lead-up and after-math of the last federal Budget. And, for instance, there’s the Productivity Commission’s current study into the efficiency and competitiveness of our super system.
It would probably be inaccurate to say the non-super side of the personal investment equation is overshadowed by super. Yet as actuaries Rice Warner points out in newsletter this month, the size and significance of the non-super personal investment market is "not always readily recognised".
Rice Warner’s recently-published Personal Investments Market Projections 2015 report calculates that Australia’s non-super personal investments market had total assets of $2.2 trillion at June 30, 2015 ¬ compared to approximately $2 trillion in super at the time. In short, the value of personal investments outside super is greater.
And the report expects that the non-super personal investments market will grow strongly at 4 per cent a year in real terms over the next 15 years to reach $4 trillion (in today’s dollars) by 2030.
The "vast majority" of non-super personal investments are held directly by investors with only 3.2 per cent held through investment products and platforms. These assets are mainly made up of directly-held cash and term deposits (41 per cent of non-super personal investments), directly-held property (42 per cent), and directly-held equities (11 per cent).
Rice Warner anticipates a sizeable shift over the next 15 years to holding non-super personal investments – including cash, term deposits, property and equities – on increasingly-efficient and lower-cost wrap platforms.
And the popularity of Exchange Traded Funds (ETFs) is expected to continue to strongly grow because of their low-cost, use for diversifying into markets inaccessible to individual investors, liquidity and transparency.
Broad themes forecast to have a significant impact on the personal investment market over the next 15 years include:
- The continuing driving down of costs "across all components of the personal investment value chain".
- Technological developments changing the distribution of investments and product design.
- Demographic shifts as waves of baby boomers keep retiring and drawing-down on their savings. And then there is the inevitable intergenerational wealth transfer.
As the sheer size of the non-super personal investment market highlights, it is critical for investors to take super and non-super investments into account when assessing adequacy (or inadequacy) of their retirement savings – and when setting appropriate asset allocations.
As cost competition intensifies in coming years, more investors are likely to recognise that the lower their investment-related costs, the greater their share of an investment’s return. It’s fundamental.
 |
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. |
|
