Managing risk for the retirement nest egg becomes a more pointed concern the closer investors get to this important stage of their lives, especially for the increasing number of Australians setting up their own self-managed super funds.
These decisions become further fraught in today’s ongoing low-interest rate environment where the zero-risk cash option comes with near-zero return.
Financial planners report one of the main concerns for SMSF clients today is about managing their level of exposure to volatile global markets.
But with optimism returning after the disruption of Covid, more investors are looking to the sharemarket as a logical option to chase higher returns.
The rise of fintechs has lowered barriers to entry but potentially also adds more risk to a portfolio than investors nearing retirement are comfortable with.
Now an Australian-developed share trading platform aims to help SMSF investors navigate this environment through the power of artificial intelligence.
The Jaaims platform uses AI to analyse more than 250 different news, financial data and social media sources in real-time, updating its stock recommendations every 15 minutes.
The results are impressive, with an annualised return of nearly 27 per cent since inception on its portfolio of more than 1000 Australian and international – mainly US – shares.
Jaaims founder and CEO Tui Eruera says more than two-thirds of new clients signing up to the firm’s flagship Smart Portfolio are using the platform to help build their SMSFs.
Eruera says growth in Smart Portfolio is being driven by the need for SMSF holders to diversify at scale while still being able to access their cash to snap up a bargain in, for example, property.
“People in SMSFs want diversification in asset allocation,” he says. “When you self-manage you’re free to invest in property, term deposits, fixed income, commodities, collectibles – and Jaaims gives you maximum liquidity with your managed funds.
“You can allocate say 25 per cent of your fund to Jaaims, set up your own broker account and you’ve got complete control of your money at all times.
“Jaaims does the trading for you and, if another opportunity comes up, obviously you will scale down your allocation – or if you’ve got excess cash that’s not working for you in your SMSF you can scale up your allocation in minutes.”
The key, he says, is to “make sure your cash is working all the time”.
According to the ATO, 1.1 million of the nation’s breadwinners have made a break from managed funds, building a collective self-managed super fund national nest egg that is now worth more than three-quarters of a trillion dollars.
And once they cut themselves loose from the old managed fund reservation, they’re not afraid to leverage technology, driving down entry costs and democratising the entire sector, say industry leaders.
Brisbane-based financial planner MGD’s manager of SMSF Brad Hoffman recently said the sector had been at the cutting edge of self-directed investing technology for a number of years.
“SMSF trustees were some of the earliest adopters of online banking and share trading platforms,” Hoffman says.
“The democratisation of access to markets as a result of internet-enabled trading platforms means that today’s investors have access to markets and trading opportunities which, in past generations, were the exclusive domain of stockbrokers, bankers, and hedge funds.”
Eruera says the “sweet spot” for SMSF cash allocation to shares in Jaaims’ Smart Portfolio is around $100,000-plus.
“I think that’s a really nice sweet spot,” he says. “But what we often see with our customers in SMSFs is that they’ll start out with, say $25,000, and then as they build confidence, they will keep increasing that,” he says.
And what does the future hold for Jaaims and the SMSF sector as a whole?
“AI is going to be a real enabler for the industry and I think you’re going to see more growth in self-managed super funds,” Eruera says.
“And I actually think there’s going to be sort of a hybrid in the future.
“There’s an opportunity or gap for people to have half and half – so people will still allocate some of their funds to traditional super funds, but people will now want to have a bit more control.”
He says technology will become even more of an enabler, particularly for socially conscious millennials driving the continued rise of ESG investing.
“People are now more conscious about investing – they don’t want their money invested in things like coal or energy.”
Read full article on the AFR.com