How to Hold Gold with your SMSF

Tuesday 24 May 2022

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Dear Investor,

Why buy gold bars?

With the next financial year around the corner, trustees are busy reviewing and updating SMSF strategies, looking for the best ways to maximise the investment opportunities the new financial year will bring, as well as hopefully avoid the pitfalls.

April and May 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.

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.

ABC Bullion SMSF Trustee's Guide Precious Metals

If you are an existing SMSF trustee, then this is the report for you. In it, you will find:

• The top reasons that SMSF trustees are adding gold to their portfolios today.

• Why silver could be an even more profitable investment than gold in the coming years.

• Frequently asked questions on bullion ownership within a SMSF.

• Key bullion products and storage solutions that suit SMSF trustees.

A case study highlighting why physical gold is a superior solution for trustees wanting to incorporate precious metals into their portfolio.

What to Hold in Your SMSF? Property vs. Gold

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.

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 it 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.

Superannuation & Precious Metals Guide

• If you have ever thought about investing in precious metals using your superannuation, but weren’t sure how, then this is the report for you. The report covers key topics, including:

• How investing in gold and silver using your Superannuation can enhance investment returns and reduce risk

• How to obtain precious metals exposure in an employer, industry or retail super fund

• The many advantages of a Self Managed Superannuation Fund (SMSF), including investment flexibility and cost savings

• The steps involved in setting up and running a SMSF

It’s a common saying that you shouldn’t put ‘all your eggs in one basket’ and it’s particularly true when it comes to your finances.

Although it’s a lesson many smaller investors and super savers forget, it’s one thriving super funds – both large funds and SMSFs – always follow.

Gold is an excellent form of “investment portfolio diversification” because of its reputation as a hedge against economic uncertainty and inflation.

Historically, gold tends to perform well whenever there are recessions, rising geopolitical tensions, or economic slowdowns and financial market volatility, like the Global Financial Crisis (GFC). Gold also does well during periods of high inflation.

All of these facts lead prudent investors to precious metals. With so many economic risks on the horizon, including escalating global debt levels over $300 trillion, our prediction is that gold will continue to be considered an excellent hedge and will remain a great way to protect wealth.

Warm regards,

The ABC Bullion Team