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SMSF Strategies: Property vs Gold

08 March 2018

Property Vs Gold
With 2018 already two months old, trustees are busy reviewing and updating SMSF strategies, looking for the best ways to maximise the investment opportunities the year will bring, as well as hopefully avoid the pitfalls.
 
February gave trustees a reminder of the risks, with SMSF strategies overly concentrated in listed equity markets suffering through a period of heightened volatility, whilst more defensive investors with higher weightings to cash will have weathered the storm better.
 
SMSF property investors are also likely getting nervous, with housing prices in parts of the country, including Sydney, beginning to fall. SMSF strategies that have borrowed heavily to finance SMSF property holdings would be the most at risk, as the leverage they hoped would magnify gains could end up wiping out a large portion of the equity they have in this asset class, even if overall property price falls are more benign.
 
One asset class that could well benefit trustees reviewing their SMSF strategies is physical gold, which has delivered strong returns that have either matched or even exceeded those on offer in shares, property and cash over the past 15 plus years.
 

What to Hold in Your SMSF? Property vs. Gold

Whilst demand for physical gold in SMSF strategies still comprises a small component of all SMSF assets, especially compared to property held in SMSFs, the role it is playing in portfolios is growing.
 
In particular, since the onset of the GFC, trustees have shown greater willingness to expand the range of asset classes they include in SMSF strategies. Physical gold has been one of the beneficiaries. That’s no surprise when you consider how well it typically performs whenever real interest rates are low, and markets are volatile.
 
As a ‘real’ asset, physical gold has some similarities to property. Both are real assets, are tangible, and can typically be owned directly, unlike some other asset classes (like bonds), which typically need to be held through a securitised structure.
 
Physical gold also has some advantages compared to property too, which include:
 
  • Exceptional liquidity. A SMSF buying gold can easily sell the gold, or part of it, on a daily basis. SMSF portfolios with a property asset are often quite illiquid, which can prove a problem when/if a trustee wants to liquidate their investment, or alter their asset allocation.
 
  • Simplicity. One of the beauties of gold as an investment is that is a homogenous asset class, making it a simple investment for trustees to incorporate into their SMSF strategy. Property on the other hand has multiple factors that influence the investment depending on what, and where you buy. In a place like Sydney, the outlook for a three bedroom free standing house in the Inner West or lower North Shore is fundamentally different to an off-the-plan apartment bought in the outer Western suburbs. SMSF Property investors in mining towns saw property prices crash, even as prices on the East Coast continued to soar.
 
None of this is to say that property is a bad investment, and people should only stick to gold. As always, it’s about diversification, and getting the asset class mix right, with the liquidity and simplicity of gold, plus its positive long-term price outlook major reasons why an ever growing number of SMSF trustees are putting it into their portfolio.

Disclaimer
This publication is for educational purposes only and should not be considered either general or personal advice. It does not consider any particular person’s investment objectives, financial situation or needs. Accordingly, no recommendation (expressed or implied) or other information contained in this report should be acted upon without the appropriateness of that information having regard to those factors. You should assess whether or not the information contained herein is appropriate to your individual financial circumstances and goals before making an investment decision, or seek the help the of a licensed financial adviser. Performance is historical, performance may vary, and past performance is not necessarily indicative of future performance. Any prices, quotes, or statistics included have been obtained from sources deemed to be reliable, but we do not guarantee their accuracy or completeness.