Self-Managed Super Funds (SMSFs) have long been the vehicle of choice for Australians seeking greater control over their retirement savings. If you’re an SMSF trustee, you’re likely familiar with the traditional investment route – property. While bricks and mortar investments have their place, limiting yourself to just one asset class could be holding your retirement dreams back.
Did you know that as of 2023, despite having over $860 billion in assets, many Australian SMSFs still concentrate their investments in just one or two asset classes? This lack of diversification not only increases risk but potentially leaves significant returns on the table.
Taking Control of Your Retirement Future
One of the most powerful aspects of an SMSF is the freedom and control it gives you as a trustee. Unlike retail super funds where investment decisions are made by others, your SMSF puts you in the driver’s seat. This control comes with responsibility – particularly the obligation to create and follow a sound investment strategy that maximizes returns while managing risks.
“The true power of an SMSF lies not just in controlling where your money goes, but in exploring the full spectrum of investment possibilities the market offers,” says financial strategist and SMSF specialist Sarah Chen.
The Australian Taxation Office (ATO) actively encourages SMSF trustees to consider diversification in their investment strategy. In fact, it’s one of the key factors they look for when reviewing fund compliance. Diversification isn’t just a regulatory box to tick – it’s a fundamental principle of sound investing that can protect and grow your retirement savings.
Beyond Property: Alternative Asset Classes for Your SMSF
Let’s explore some of the best SMSF investment options you might not have considered yet:
1. Digital Currencies and Blockchain Assets
Cryptocurrency investments have evolved from speculative playthings to legitimate asset considerations for forward-thinking SMSFs. Bitcoin, Ethereum, and other established cryptocurrencies can provide exposure to cutting-edge technology and potential growth. However, compliance considerations are crucial when adding crypto to your SMSF portfolio.
While still volatile, a small allocation (typically 1-5% of portfolio value) can potentially deliver outsized returns while having minimal impact on overall portfolio risk. Recent data shows approximately 7% of Australian SMSFs now have some form of cryptocurrency exposure, with this number growing steadily.
When considering crypto for your SMSF, ensure proper custody arrangements, maintain accurate records of transactions, and understand the regulatory framework, which continues to evolve in this space.
2. International Shares and Markets
Many SMSF portfolios remain heavily weighted toward familiar Australian shares, missing opportunities in global markets. International shares can provide access to sectors underrepresented in Australia (like technology and healthcare) and exposure to faster-growing economies.
With platforms making international investing increasingly accessible, your SMSF can now hold shares in companies like Amazon, Tesla, or LVMH just as easily as local favorites. Exchange-traded funds (ETFs) focusing on specific regions or sectors can simplify global diversification.
A recent study showed SMSFs with at least 20% allocation to international assets outperformed Australia-only portfolios by an average of 1.3% annually over the past decade – a significant difference for long-term retirement planning.
3. Fixed Income and Bonds
In the current environment of economic uncertainty, bonds and fixed-income securities offer stability and income to balance growth-oriented investments. Corporate bonds, government securities, and treasury notes can provide predictable income streams with lower volatility than shares.
“Many SMSF trustees overlook fixed income because it lacks the excitement of property or shares,” notes bond market specialist Michael Tran. “But a well-structured bond component can be the ballast that keeps your retirement ship steady during market storms.”
With interest rates changing, bonds have become more attractive as best SMSF investment options, offering yields that haven’t been available for years. Different maturity profiles can help manage interest rate risk while providing liquidity not available in property investments.
4. Infrastructure Investments
Infrastructure assets – including toll roads, airports, utilities, and telecommunications networks – offer attractive characteristics for retirement portfolios: stable, inflation-linked income streams and essential services demand. These investments provide valuable portfolio diversification benefits compared to traditional assets.
While direct infrastructure investment was once only available to institutional investors, SMSFs can now access these assets through specialized listed investment companies (LICs), infrastructure funds, or ETFs. These investments typically provide yields of 4-6% with potential for capital growth and inflation protection.
Infrastructure investments tend to have low correlation with traditional asset classes, enhancing diversification benefits. During recent market downturns, infrastructure has frequently outperformed broader equity markets.
5. Exchange Traded Funds (ETFs)
ETFs have revolutionized investing by providing instant diversification with a single transaction. For SMSF trustees, they offer efficient access to markets, sectors, or themes that might otherwise be difficult to access.
The Australian ETF market now exceeds $150 billion, with options covering everything from broad market indices to thematic investments in areas like cybersecurity, clean energy, or artificial intelligence.
“ETFs have democratized sophisticated investment strategies for SMSFs,” explains investment adviser James Wong. “A trustee can now build a globally diversified portfolio spanning multiple asset classes with just a handful of ETF holdings.”
The cost efficiency of ETFs (with management fees often below 0.2% annually) makes them particularly attractive for fee-conscious SMSF trustees looking to maximize their returns.
6. Commodities and Precious Metals
Commodities like gold, silver, and other precious metals have historically served as hedges against inflation and currency devaluation. Physical gold holdings are permitted within an SMSF, provided they’re properly stored and insured, or you can access commodities through ETFs or specialized funds.
Beyond precious metals, commodities like agricultural products, energy, and industrial metals can provide portfolio diversification due to their different performance cycles compared to financial assets.
During the inflation spike of 2022, gold-holding SMSFs weathered the storm better than those without inflation hedges, demonstrating the value of these alternative assets during economic stress periods.
7. Private Equity and Venture Capital
For SMSFs with higher risk tolerance and longer investment horizons, private equity and venture capital investments can provide access to growth companies before they reach public markets.
While traditionally difficult for individual investors to access, new platforms and investment vehicles now allow SMSFs to participate in private market investments with lower minimum thresholds. These investments are generally illiquid and should represent a smaller allocation (5-10%) of a diversified portfolio.
The potential returns can be substantial – private equity has historically outperformed public markets by approximately 3-5% annually, though with significantly higher variability of outcomes.
8. Collectibles and Artworks
For the passionate collector, SMSFs can invest in art, antiques, coins, stamps, and other collectibles – with strict conditions. These investments must be properly insured, professionally stored, not used by fund members, and independently valued.
While primarily purchased for potential appreciation rather than income, quality collectibles have shown strong performance during inflationary periods and can add another diversification dimension to a portfolio.
Navigating Alternative Investments with Integrity and Expertise
At Aries Financial, we believe in empowering SMSF trustees to make informed decisions across the full spectrum of investment opportunities. Our philosophy centers on integrity, expertise, and empowerment – values that align perfectly with the responsibility of managing your retirement savings.
When considering these alternative best SMSF investment options, it’s essential to:
Maintain compliance – Different asset classes have specific regulatory requirements for SMSFs. Ensuring your fund remains compliant while exploring alternatives is crucial.
Consider liquidity needs – Unlike property, many alternative investments offer greater liquidity, which can be advantageous as members approach retirement phase.
Understand correlation benefits – The true power of diversification comes from combining assets that perform differently under various economic conditions.
Align with your investment timeframe – Some alternatives are better suited to longer-term investment horizons, while others can provide shorter-term opportunities.
Review and rebalance regularly – A diversified portfolio requires periodic adjustment to maintain target allocations as different assets perform at different rates.
“What we see among our most successful SMSF clients is not just diversification for its own sake, but strategic diversification aligned with their retirement goals and risk tolerance,” explains John Dimitropoulos, Senior Investment Strategist at Aries Financial. “The best portfolio is not the one with the highest potential return, but the one most likely to help you achieve your specific retirement objectives.”
Building Your Diversified SMSF Strategy
Creating a truly diversified SMSF portfolio starts with understanding your investment objectives, time horizon, and risk tolerance. From there, you can strategically allocate across multiple asset classes to create resilience against different market conditions.
Consider this allocation framework as a starting point for discussion:
- Growth assets: 40-70% (Australian shares, international shares, property, private equity)
- Defensive assets: 20-40% (bonds, fixed interest, cash)
- Alternative assets: 10-25% (infrastructure, commodities, cryptocurrencies, collectibles)
This framework can be adjusted based on your age, risk profile, and retirement timeline. Younger trustees might weight more heavily toward growth assets, while those approaching retirement may increase defensive allocations.
Conclusion: Embracing the Full Spectrum of Opportunity
The best SMSF investment options extend far beyond the traditional property focus many trustees default to. By thoughtfully incorporating alternative investments, your SMSF can achieve greater diversification, potentially enhanced returns, and more effective risk management.
At Aries Financial, we’re committed to supporting SMSF trustees in exploring these opportunities with confidence and clarity. Our expertise in SMSF lending and investment strategies positions us as the ideal partner for trustees looking to optimize their retirement planning.
Remember that diversification isn’t just about spreading risk – it’s about strategically positioning your retirement savings to capture opportunities across the full investment landscape. By looking beyond bricks and mortar to consider these alternative options, you’re taking an important step toward a more secure and prosperous retirement.
Your SMSF gives you the freedom to invest on your terms – make the most of it by exploring the best SMSF investment options available in today’s dynamic financial markets.
