How an ETF can help your SMSF portfolio
exchange traded funds (ETFs) can potentially be a great match.
They make it easy to invest across a broad range of shares and different asset classes, strengthening your
Adding an ETF to an investment portfolio can add instant diversification, with generally lower fees than investing through managed funds.
Simple integration with SMSFs
Many SMSF trustees choose direct shares over managed funds due to cost, but this approach can create a significant administrative burden. It also makes it expensive to build adequate diversification into a portfolio.
ETFs can be a great alternative, as they offer the control and flexibility, plus the tax effectiveness and low cost of index funds.
ETFs can be very SMSF friendly and they comply with the rules around eligible assets for inclusion in an SMSF investment portfolio.
5 ways ETFs can help your SMSF portfolio
ETFs can be a great alternative to using direct shares. They offer all the diversification, tax effectiveness and
1. Cost effective
As the aim of an index ETF is to track the performance of an index or asset class, they are generally lower in cost compared to a product that is actively managed.
2. Easy diversification
ETFs can be a simple and low-cost way to diversify an SMSF investment portfolio across asset classes, investment strategies and geographic regions. You can invest in ETFs providing broad exposure within a specific asset class ordiversify across asset classes to reduce volatility and helpsmooth investment returns over time.
Another approach is to invest in a diversified index ETF as the core of your SMSF investments. Diversified ETFs allow your fund to cover all the major asset classes with a single trade, giving you instant access to a widely diversified portfolio. They also automatically rebalance between the various asset classes to ensure they remain in line with their pre-set asset allocation.
3. Simple and transparent
Unlike many managed funds, ETFs are very transparent, with their portfolio holdings readily accessible on the manager’s website. Trading prices are available in real time whenever the ASX is open.
Because ETFs are traded on the ASX, they can be bought and sold during the trading day like a normal share through a stockbroker or online trading account. This makes it very straightforward to add to or reduce your SMSF’s investment holdings whenever it’s required.
4. Simple global investing
Given how difficult and costly it can be to access a well-diversified range of international assets, it’s unsurprising most SMSFs have under 1.5 per cent of their funds invested in overseas assets(1).
ETFs can be an easy and low-cost way to boost the
5. Tailored investment strategies
ETFs may make it easy to implement tailored investment strategies in your SMSF. They can be used as the ‘core’of a share allocation, with directly owned shares or actively managed investment funds acting as smaller ‘satellite’investments to create a customised SMSF portfolio.
As ETFs are traded in the same way as shares, they also make it easy and cost-effective to rebalance a portfolio if it moves away from the asset allocation set for each asset class. They are also a great tool if your SMSF needs to rapidly move cash into an investment
Key things to remember
ETFs are a simple and cost-effective tool for improving your SMSF portfolio. With ETFs it’s easy to:
- Diversify a portfolio across a broader rangeof assets (either a single asset class or a mixof assets).
- Invest in international asset classes, including those difficult for individual investors to access (such as global fixed interest and listed property).
- Keep transaction costs low.
- Create investment strategies tailored to your needs.