A new report predicts that as the world economic storm abates and trading equities becomes easier, Australians will raise their direct holdings.
THINGS might seem a little tough at the moment - they're not really, check out Nicole Pedersen-McKinnon's column for at least five reasons why you should feel smug - but our wealth as measured by personal investment, which includes investments held in banks, shares and investment properties, is targeted for massive growth.
You may have heard predictions for increases in superannuation funds from the current $1 trillion to almost $3 trillion by 2020. That, of course, is fuelled by the superannuation guarantee, currently 9 per cent but due to rise to 12 per cent, which goes into the superannuation basket year after year, regardless of how wealthy we might feel as individuals.
But personal investment is somewhat different. It's what we invest when we can afford it and is obviously dependent upon our financial situation.
According to a recent report by Rice Warner, total personal investments are sitting at $1.943 trillion and will grow to $3.588 trillion during the next 15 years.
It should come as no surprise that the majority of personal investments - nearly 47 per cent - are directly held in investment properties Australia's love affair with bricks and mortar is well documented.
Cash is also very popular at the moment. Directly held cash and term deposits make up a third of our personal investments with direct investment in equities accounting for just 10 per cent.
Rice Warner predicts that how we invest during the next 15 years will change. And they are probably right. The odds are that as Europe sorts out its problems, sentiment will improve and we won't be so keen on safe and defensive places to put our money.
Our allocations to cash are still predicted to be fairly high in 2026 - with direct holdings of cash accounting for 30 per cent of all personal investments.
However, as buying shares becomes cheaper and simpler via online brokers and instruments such as exchange-traded funds, we're more likely to want to hold more of them and hold them directly, i.e. not through managed funds.
So Rice Warner predicts our direct holdings of equities to rise to almost 20 per cent of all personal investment. Investment property is also predicted to drop to about 37 per cent (of directly held assets).
Unfortunately for the people in the business of managing our wealth, direct investments will remain the largest component of our individual personal investment portfolios.
That figure is currently 93 per cent. It will reduce slightly in the next 15 years to 91 per cent but we will still remain hesitant when it comes to giving our funds to the professionals. But, lucky for them, they still get to look after most of our superannuation funds.
I wrote last week about the growing number of self-managed superannuation funds and the assets they control but they still account for less than half of all superannuation assets, which means the rest of those funds are in the hands of the financial institutions.
That's not necessarily a bad thing but just make sure, like always, you're getting value for what you're paying for.
Frequently Asked Questions about this Article…
What does the Rice Warner report predict for the growth of Australians' personal investments?
Rice Warner estimates total personal investments in Australia are about $1.943 trillion today and will grow to roughly $3.588 trillion over the next 15 years as households invest more outside superannuation.
How much of personal investment is currently held in investment property and how might that change?
At the moment nearly 47% of directly held personal investments are in investment properties. Rice Warner predicts that allocation will fall over the next 15 years to about 37% of directly held assets as other investments become more attractive.
Are Australians holding a lot of cash in their personal portfolios, and will that continue?
Yes. Directly held cash and term deposits currently make up about one third of personal investments. Rice Warner still expects cash holdings to remain fairly high, with direct cash predicted to account for about 30% of personal investments by 2026.
Will direct share holdings (equities) increase for everyday investors?
The report predicts direct holdings of equities will rise. Today direct equities account for about 10% of personal investments, and Rice Warner expects that to climb to almost 20% over the next 15 years as buying shares becomes cheaper and simpler.
How will the balance between direct investments and managed funds change?
Direct investments are and will remain the dominant part of personal portfolios — currently about 93% of individual personal investments are held directly, and that is projected to edge down only slightly to around 91% in the next 15 years. That means many Australians will still prefer holding assets themselves rather than through managed funds.
What impact will superannuation guarantee increases have on the size of super funds?
Predictions mentioned in the article suggest superannuation assets could grow from about $1 trillion to nearly $3 trillion by 2020, driven largely by increases in the superannuation guarantee (SG) currently at 9% and scheduled to rise to 12%.
How significant are self-managed super funds (SMSFs) compared with other superannuation funds?
SMSFs are growing and control an increasing amount of assets, but they still account for less than half of all superannuation assets — meaning most super funds remain in the hands of financial institutions and professional managers.
What should everyday investors take away from these investment trends?
The key takeaways are that Australians may shift gradually toward more direct share ownership (helped by online brokers and ETFs) while still holding sizable amounts in property and cash. Whatever mix you choose, make sure you’re getting good value for any fees you pay and that your investment approach suits your financial situation.
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