That said, there is also an argument that over the last decade people have been consistently caught on the wrong side of the rates equation when deciding between fixed and variable.
During the global financial crisis, for example, when interest rates were cut to emergency levels of 3 per cent, says Scholten, those who opted for fixed were caught wrong-footed as interest rates continued to fall. This leaves the option of splitting a loan between fixed and variable.
With regard to your questions about your SMSF property asset, for someone on the brink of retirement one thing you must ask yourself is how liquid this investment will be when the time comes for you to retire and withdraw income from your super.
Your diversification strategy might be better focused on how you plan to deal with your investment in property where the big issue for property in the drawdown phase of superannuation is how you will meet pension payments.
Liquidity is another issue when it comes to investments like the exchange traded funds you are considering. At retirement, you need investments that will pay you income.
Now exchange traded funds are a simple and cost effective way to getting exposure to a particular asset class. ETF Securities offers two separate ETF’s that provide exposure to gold and silver. The promoter physically holds the underlying gold and silver (in this case both in a vault in London).
This is far simpler than buying physical gold bullion or silver. And you don’t have to worry about storing it and complying with some strict SMSF rules that relate to this.
Another way to gain exposure to gold (or any commodity) is to buy shares in an actual miner or a mining services company. This will provide exposure to the commodity and the share price is likely to move in response to movements in the price of the commodity.
The risk here is corporate risk. This is particularly important with miners who are required to provide substantial capital to both establish and then run their operations. Shares are also exposed to market risk.
Another gold ETF option in the Australian market is the Betashares ETF. Again the underlying physical gold is held in a vault in London.
ETF’s trade like shares so you will need either an online trading account or a broker to purchase them.
If doing this yourself, it is important that you establish a dedicated trading account only for your SMSF to ensure there is no ‘co-mingling’ of personal and SMSF assets.
Question: What is the likely impact of moving my super balance, currently in a balanced fund with QSuper, into equities to grow my super on the inevitable upswing? Obviously it may take a while but I have another 11 years before retirement. Peter.
Answer: The QSuper balanced fund has been a very interesting superannuation option for those who belong to this during the current financial markets uncertainty.
While it has a significant exposure to shares, around 34 per cent (two-thirds in international shares), it also has a major exposure to interest paying bonds, says Ian Fryer, of superannuation researcher Chant West.
More particularly the bonds, which represent 25 percent of the $13 billion fund, have been chosen for their longer terms to maturity, something like 15 years. QSuper pursues what is described as a high or long duration bond investing strategy where it focuses on bonds described as having a high duration value.
Duration is a measure of how sensitive tradeable interest paying investments like bonds are to changes in interest rates. One of the features of bond investments is that those with longer terms to maturity are more sensitive to changes in market interest rates.
While most balanced funds, he says, have a mix between shares and bonds so that when shares retreat the value of bonds should provide some reassurance, where a portfolio has long duration bonds in a market where not only shares fall but interest rates also decline, the bond portfolio can benefit in a significant way. The result can be that the overall value of the bond investment option can counteract some of the falls in share values.
In the case of the QSuper balanced fund, says Fryer, its members saw their super investments decline in overall value by 6 per cent between the start of February and mid-March compared to an 11 per cent decline in the middle ranking public superannuation growth funds where most Australians have their superannuation invested.
With regard to your question, one thing you might ask yourself is whether now is the time to move to a higher risk strategy given the seemingly mounting views that the current uncertainty is far from over.