Asset Allocation - SMSF

My wife and I have established a SMSF and are in the process of transferring our super from Industry Super Funds. Over the past year or so I have read a lot about asset allocation and am wondering if I could have some feedback from the experienced share investors on the forum on the asset allocation below.

Recently I have read an article '6 steps to the ultimate retirement portfolio' (US based) which advocated including large and small cap value and growth investments, as well as REITs in the mix.

I haven't included all of the above suggestions in my proposed portfolio - but its certainly something I'd consider. I'd also consider adding LICs.

My wife and I can't access our super for 15 yrs. Its function will be to supply additional income to supplement the property and share investments we have outside super.

I have come up with the following proposed portfolio:

Australian Shares - 50%
1) VAS ETF 25%
2) i shares S&P/ASX 200 ETF (IOZ) 5%
3) State Street S & PI ASX 200 ETF (STW) 5%
4) Vanguard MSCI Aust Small Companies Index ETF (VSO) 5%
5) ishares S&P/ASX Small Ordinaries ETF (ISO) 5%
6) State Street S&P/ASX Small Ordinaries ETF (SSO) 5%

US Shares - 25%
1) i shares S&P500 (IVV) 15%
2) i shares Core S&P Small Cap ETF (IJR) 10%

Ex US Shares - 20%
1) VGS 10%
2) VEU 10%

Cash - 5%

 

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No exposure to indirect property via LPT sector?

 

I'm certainly no expert. I am looking at doing a similar thing - from my research so far I am moving my super into ING. Only $300 pa fees, reasonable brokerage and all the products you are interested in are available.

So asking a question if I may, what do you see the advantage of a SMSF over something like the ING product? OR disadvantages of ING? I imagine that the SMSF would be more expensive and complex to run.

In your Ex US Shares you have VGS which is over 60% US at present, just making sure you are aware.

I am including LICs in my portfolio, looking at more industrial based ones that pay good dividends.

 

Australiansuper Oz shares at 0.31% MER is a good product which has outperformed over the long term and a serious challenger to SMSF for someone who doesn't want to muck around. (And I have SMSF).

Personally I am happy to go 80%+ Oz shares in super, cannot beat the power of dividend imputation in super. If that changes then I'll change my view. I used to faff around with asset allocation but have come to realise there is one free kick available to us, I'll take it every time.

 

Thanks Hodor,

There are so many options available - can certainly be confusing. I hadn't considered Ing before. Had a quick look. Seems that if I wanted to invest in the index funds above through Ing there would be a .50% administration fee, .25% fee plus a buy/sell spread for each ETF as well as the brokerage fee. (See below from Ing website).

I wasn't aware that VGS has over 60% US shares at the moment. Perhaps something in its place would be more appropriate.

I like the sound of the industrial shares through an LIC. From reading I have done previously MIL and WHF would provide this exposure.

Thanks Hodor, any more observations would be appreciated.


From Ing web site re: Fees.

Select category: Create your own investment strategy by choosing from a range of managed investments.

• Administration fee
  0.50% p.a. of the Select category account balance, capped at $1,000 p.a.
• Investment fee
  0.25% p.a. of the Select category account balance
• Buy/sell spread
  Estimated to be between 0.06% - 0.31% when buying or selling units
• Indirect cost ratio
  Nil

Shares category: Take a hands-on approach, with real-time trading of S&P/ASX 300 shares, plus a selection of Exchange Traded Funds and Listed Investment Companies.

• Administration fee
  $300 p.a.
• Brokerage
  Brokerage of $20 or 0.13% per trade (whichever is greater)

 

You only pay the fees on the category you select. "Select" and "Shares" are two different super products from ING.

"Choose the category you're interested in to see just how low the fees are." (from the website)

See the link below for a table;
Compare Our Low Cost Living Super Investment Options

As Falcon mentioned the imputation credits are huge, once I realised the tax rate on super and what my fund was achieving I started shopping around. I have compared CBUS, AustralianSuper and ING (for direct share purchases in super), to me it appears that a $300 pa fee is unbeatable. I paid around twice that for my current fund last year and it is only going to get worse as it grows.

What is your reasoning for keeping 5% cash? Is it to pick up any bargains that may arise? That would be my only reason for keeping anything in cash with 15 years to go.

 

A couple of observations.

AUS SHARES:
Items 1,2,3 are basically the same thing. Why not just choose the cheapest being VAS.

Items 4,5,6 also essentially the same thing. Plus in Oz small cap Index funds just don't work well. Too much mining rubbish. Go active managers.

REITs are already included in VAS by cap weighting unless you want to go overweight.

INTERNATIONAL:
Make life easy for yourself, just roll everything into VGS.

If you are into the asset allocation and index religion try this forum thread:

Bogleheads.org - Index page
Australian Investing Thread

Canada is the only country in the world with very similar attributes to Australia. Boglehead type discussion here:

Financial Planning and Building Portfolios - Financial Wisdom Forum

However try not to become too fanatical about asset allocation and the index approach. To some it becomes like religion. Keep an open mind. Not everything that has its origin in the US works as well in Australia. As The Falcon emphasised don't underestimate the benefits of dividend imputation in Australia. Take advantage of it, you'll retire sooner!

Some ideas:

Oz Large Cap:
ARG/AFI/MLT/BKI (Slightly Active, dividend focused)
VAS (ASX 300 Index)

Oz Mid and Small Cap:
QVE (Active Mgrs generally way outperform in this space)

International:
VGS (Index, International developed markets)
FGG (active, multi-manager covering everything)

Note, not licenced to give advice.

 

First up I'm retired and have had a SMSF for many years with a sizeable investment portfolio. And it works great for us.

Would I recommend a SMSF for someone relatively young and/or without a large balance nowadays? Probably not. Both sides of Government are out to reduce the amount of money one can get onto Super. And a sizeable balance is needed to cover relatively expensive SMSF admin and audit fees etc.

Industry funds are going all out to compete with SMSFs and are getting more creative with their offerings such as the CGT issue when starting a pension. And don't underestimate the bliss of not having to worry about admin issues with an Industry Fund. Finally it is quite probable that those younger now may be waiting till 65 or more before they can access their funds. Think carefully about tying too much in Super if access is quite someway off. Keeping fees minimal is important. Perhaps pay off home and focus on early retirement first unless you want to wait until potentially 65 plus.

Not advice.

 

for us smsf works well as it means we have total flexibility. we can and in some cases have made investments in startups, other public unlisted companies, commercial property, private businesses (can't be a controlling stake over a certain %) etc.

ING product cannot give you that flexibility as far as I know.

we aren't interested in shares generally or index funds atm so our priorities could be different

 

Thanks, I suspected they might be the main advantages.

You are correct about the ING product, only ASX300 companies and selected ETFs and LICs are available. I am only interested in those at the moment so minimising fees and costs is a key focus.

 

Thanks for the feedback, Austing, The Falcon, Sanj, Hodor and TerryW. Looks like I'm doubling up in places and making it more complex than it needs to be.

Austing - some great ideas there - I'll look at those ETF's that you've suggested.

The Falcon - I like the idea of the franking credits through the Aus share ETF's. Certainly very powerful.

Hodor, although at this stage I'm not intending to invest in direct prop through super, I have set the SMSF up to be able to if the opportunity arises in the future.

Thanks again.

 

@Jingo - I pulled this allocation table from CBUS (industry fund) as a guide to asset allocations of a major fund.

Allocations vary according to risk appetite.

 

it appears you've investments (property, shares) outside super and relying on that for early retirement before touching the income from super. I assume you both working, Being 15 years away from accessing super have you should consider buying property in SMSF and maximize the
concessional contributions to pay it off aggressively as it could provide you the income once you reach the super age. We know that Government will change the contribution limits but don't think they will remove it.

We are abt 30 yrs away from accessing super (unless they change the date) and currently building investments outside super to fund early retirement. After understanding on how imputation credit works in super we are thinking setting up SMSF to focus mainly on Aus. shares build up enough SMSF balance and review buying properties in SMSF once we are
15-20 yrs away from accessing super.