Outside super: Our other personal investments
22 March 2018 | Retirement and superannuation
How does the value of your non-super savings compare to the value of your super savings? And do you take both into account when setting the most appropriate asset allocations for your portfolios?
These are key questions for many investors – particularly considering that the total value of Australia's non-super personal investments now exceeds the total value of our super.
Many investors may not realise the magnitude of the non-super personal investment market because the size of our total super savings tends to receive much of the media and political attention.
The Personal Investments Market Projections 2017 report, published this month by consultants Rice Warner, calculates that the total value of super and non-super personal investments was $4.9 trillion at June 2017. Non-super investments make up more than half of this total, overtaking super last financial year.
Depending upon their circumstances, it can be critical for investors to coordinate their super and non-super investment portfolios. This includes for their retirement and investment strategies, strategic asset allocations for portfolios, periodic rebalancing of portfolios, tax planning and estate planning.
And when assessing the adequacy of your retirement savings, all of your investments, inside and outside super should be included in your calculations.
Rice Warner defines the personal non-super investments market in its "broadest sense" including all investment assets held by individuals directly or through trusts and companies. It excludes family homes and personal effects.
Direct property together with directly-held cash and term deposits make up a huge slice of non-super personal investments in dollar terms. While direct property (net of mortgages) accounts for 41 per cent of the assets, directly-held cash and term deposits account for 43 per cent. By contrast, direct shares make up just eight per cent of personal non-super investments.
Individuals hold 92 per cent of personal non-super investments directly rather than through investment products and platforms. (In this research, exchange traded funds are classified as directly-held shares, not managed funds.)
Numerous investors, of course, choose to hold geared and non-geared direct property in their own names – often dominating their non-super portfolios – while having more widely-diversified super portfolios.
The report's expectations for the short-to-medium term for the non-super personal investment market include:
- Personal non-super investments are becoming more important to wealthier, higher-income investors with the introduction from July last year of the superannuation pension cap and tighter contribution limits.
- Exchange traded funds (ETFs) will continue to grow in popularity "as investors seek to improve portfolio returns through increasing allocation to low-cost, passively-managed investments".
- Direct property will remain a popular personal investment, driven mainly by low interest rates and its tax treatment. However, property "seems increasingly risky" given raised prices (particularly in Sydney and Melbourne), the impact if rates rise, and the risk of changes to taxation "as housing affordability moves up the political agenda".
- Pressure will continue for investment management fees to fall.
- Low interest rates will keep encouraging investors to reduce their holdings in cash and term deposits.
Over the next 15 years, Rice Warner projects that our personal non-super investments will grow in value to more than $5 trillion in 2017 dollars against $4.3 trillion for the superannuation sector.
A takeaway message for investors from such research and projections is not to look at their investments inside and outside super in isolation. It's all part of your investment mix.
Written by Robin Bowerman, Head of Corporate Affairs at Vanguard.
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Robin Bowerman, Head of Corporate Affairs at Vanguard Australia, shares investment and personal finance insights gained from over two decades in the finance industry as writer, commentator and editor.