Many investors may not realise that Australia's super and non-super personal investment markets are almost equal in value.
Yet super tends to dominate the personal investment headlines – particularly in the lead-up to the biggest changes to the super system in at least a decade from July. The Personal Investments Market Projections 2016 report, just published by actuaries and consultants Rice Warner, calculates that the total value of super and non-super personal investments was $4.75 trillion at June 2016. And non-super investments made up 49 per cent of this total.
It is critical for investors to co-ordinate 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.
One of the challenges when trying to assess the adequacy (or inadequacy) of your retirement savings is to fully take into account all of your investments, inside and outside of super.
Rice Warner defines the personal non-super investments market in its “broadest sense” including all investment assets held by individuals in their own names or through trusts and companies. It does not include family homes and personal effects.
Direct property and directly-held cash and term deposits make up the vast majority in value of non-super personal investment. While direct property (net of mortgages) accounts for 40 per cent of the assets, directly-held cash and term deposits account for 43 per cent. By contrast, direct shares make up just 9 per cent of personal non-super investments.
Individuals hold 93 per cent of personal non-super personal investments directly rather than through investment products and investment platforms.
Numerous investors, of course, hold geared and non-geared direct property in their own names – often dominating their personal non-super portfolios – while having more widely-diversified super portfolios.
Rice Warner expects that the lowering of the super contribution caps from July 1 to lead to a small fall in the total value of non-super personal investments in 2016-17 followed by “modest but sustained” growth in subsequent years.
“This reflects many wealthier individuals making one-off contributions to superannuation in the current financial year; potentially funding the contributions from existing assets rather than income,” its report explains.
However, Rice Warner anticipates that the lower contribution caps will mean that more money is directed into non-super personal investments after July this year.
It is worth considering whether to take professional advice about your overall super and non-super investment portfolios. It can be a trap to look at each in isolation.
Upcoming article: How Australia's non-super personal investment market may develop over the next 15 years and what it may mean for you.
Head of Market Strategy and Communications at Vanguard.
01 May 2017