The holy grail for your SMSF – diversification AND attractive income

Did you know the average SMSF investor has around two-thirds of their capital in shares and cash?* When you are relying on the income from dividends to fund your lifestyle it can be tempting to put all your eggs in one basket, despite share market volatility being a key cause of concern for SMSF investors.

However, diversification does not need to come at the expense of attractive income. The solution may be an investment opportunity you walk past every day.

Over the last 30 years, commercial property investments like shopping malls, office towers and industrial estates have consistently delivered healthy distributions, even in a low interest rate environment. Depending on your situation, they could also help you create a more diversified and reliable income stream — especially if much of your wealth is already tied up in shares, cash and residential property.

The high-yielding property alternative

While Australian residential housing has a history of exceptional capital gains, its income potential is more limited, particularly when prices are elevated. Sydney house prices are up nearly 75% and Melbourne house prices are up nearly 50% in the last 5 years. That’s why institutional investors and wealthy individuals have historically turned to commercial property as a rewarding alternative.


















Create a more diversified income stream

Commercial property also has the potential to reduce overall portfolio risk due to its traditionally low correlation to asset classes like Australian shares — meaning they’re less likely to underperform at the same time. This is because with commercial property, tenants are typically locked into leases for 3 to 10 years and are obliged to pay a steady rent even if their profitability has declined.

Three ways commercial property could help you diversify

  • Stable distributions. Earn income from long-term leases with well-resourced corporate and government tenants and built-in annual rent increases.
  • A hedge against inflation. Historically, commercial property values have tended to rise at rates similar to inflation, helping to preserve the real value of your capital.
  • Potential gains when rates are low. Commercial property asset values generally rise when interest rates are low and investors are willing to pay more for yield, helping to offset lower returns on your cash investments.

Is cash no longer king?

An interesting article by the Financial Observer commenting on why investors should be looking for alternatives to term deposits. One such alternative is exchange traded bonds (XTB’s) which, has a slightly higher risk profile but pays a substantially larger coupon and has greater liquidity. The team at PE Capital agree with this and as a result have invested approximately 40% of the Y Fund directly into an XTB separately managed account.

Why SMSF retirees will need an extra $120k to retire

A great article looking at why SMSF retirees will require additional funds to maintain a comfortable lifestyle once they retire. The reason being, that conservative investment portfolios and the associated low returns (especially cash and fixed income) will need to be offset by an increase in funds to meet their lifestyle requirements. The other alternative is that they place their funds in investments that pay a better return

Morgans Financial Advisor Briefing

Sam Osborne, Director of Capital at PE Capital, recently presented the newly launched PE Capital Y Fund to the Morgan’s Financial adviser network. The Y Fund is an enhanced cash fund offering competitive returns with high levels of security and liquidity. It is aimed at SMSF trustees, institutions and retail investors who are seeking a better return than that available from term deposits. Morgan’s Financial is Australia’s largest retail stockbroking and wealth management firm, with over 300,000 clients, 500 authorised representatives and more than 50 offices around Australia

Creating Wealth 101

Becoming wealthy


What is the secret to becoming wealthy? What does “becoming wealthy” even mean? It obviously means different things to different people but, to me, it’s just a polite way of saying “getting rich”. So what does “get rich” mean? Again, it’s up to the individual but to me, a general, back of the envelope measure would be to have assets, less debt, of between $1m to $5m. This includes property, shares, super and cash.


Sound fair?


So what’s the secret to accumulating between $1m and $5m in net assets? There are a number of ways of getting there. This is my simple summary.


1.      Gift or inheritance. Someone you know gives you lots of money. Hooray!

2.      Win the lotto. Again, hooray!

3.      Invent something valuable. Think Steve Jobs, Bill Gates, Mark Zuckerberg, etc

4.      Have some special skill. Think Sports Star, Movie Star or Musician.

5.      Start your own business. That could be anything but importantly it needs to be something that someone else finds monetarily valuable. The other critical thing about starting a business is you need capital (cash) to start. Without capital it is very, very difficult to start your own business.

6.      The final way is, in my experience, by far the most common. It’s the way most “wealthy” people do it. It’s not glamorous, it’s not sexy and you won’t have much to post on social media. And, did I mention, it takes a long time, think 20 years. The good news is it’s available to almost everyone. You don’t need any special skills. You don’t need any capital to start. You don’t need much luck, although a little bit always helps. You will need to be prepared to work hard for a long period of time. And you will need to have ambition. Almost everyone you know who’s “wealthy” has done it this way. And, by the way, you already know how to do it, because this is what your parents have told you, endlessly.


Here’s how:


1.      Work hard at school. Get good marks.

2.      Go to uni. Preferably choose a course which offers high paying career opportunities. Think banking, accounting, law, medicine, IT, etc. Work hard. Finish your degree.

3.      Get an entry level job in said industry.

4.      Work hard. Get promoted. Stick at it.

5.      Buy a property to live in.

6.      Contribute to super.

7.      Buy an investment property.

8.      Invest in shares and managed funds.

9.   Keep contributing to super.

10.  Save your money.

11.  Do not lease your car. Buy it.

12.  Catch public transport to work.

13.  Eat at home.

Why do fixed income returns fall when interest rates increase?

Sam Osborne, Director of Capital at PE Capital tells us why:


It seems strange to think that an asset linked to a fixed return such as fixed income falls in value when the very measure that the asset is linked to, interest rates, is rising.  Here's why.


When market interest rates increase, for example, when the RBA or Federal Reserve increases cash rates, the value of the bond the investor is holding decreases.  This is because investors are able to achieve better returns by purchasing other investments which reflect the new, higher interest rate.  A fixed rate bond yield, such as available through the PE Capital Y Fund, is more valuable as interest rates decrease as the investor receives a fixed rate of return while other new bonds on issue are offering lower rates of return as a result of the decrease in interest rates.

Millennial Super

The attached article breaks a number of stereotypes that we have regarding the millennial demographic.


  • They are our largest pool of investors making up 59% of the market.
  • They are more conservative than we thought with a priority to seeking guaranteed or reliable investment returns
  • They have more money due to higher incomes and inheritance
  • They are socially responsible with their investment strategy
  • They don’t actively seek advice as it is either too expensive or they don’t have enough
  • They make up over 50% of all mobile trades via CommSec


However as expected:

  • They embrace the technology component and are more likely to utilise mobile apps

Millennial investors smash avocado myth in ASX report

Contrary to the stereotype that millennials imprudently spend all their money on expensive smashed avocado breakfasts, the ASX has revealed the number of millennial investors in Australia has almost doubled over the last 5 years. Young investors (18-24yo) now make up 20% of Australian investors (up from 10% in 2012), with the proportion of Gen Y investors (25-34yo) increasing from 24% to 39% of individuals investing over the same period.

ASIC's Greg Medcraft warns hybrids are 'ridiculous' for retail investors

The chairman of ASIC Greg Medcraft said today in the AFR that billions of dollars of hybrid securities issued to retail investors by the major banks will eventually cause problems for the financial system. 

Mr Medcraft said hybrid securities were a “ridiculous” product for retail investors. He said it was notable that they had been banned for retail investors in other markets such as the United Kingdom.  "If a bank has any trouble they're the first line of defence." 

ASIC queried advisers and brokers in the June quarter about advice given on hybrids. 

More small investors using SMSFs to buy commercial property

Head of Policy for the SMSF Association Jordan George comments that investing in Commercial Property which offers diversification, stable and higher returns “is part of an overall trend that is seeing SMSF’s diversify their portfolios away from blue-chip, fully franked Australian shares and cash and term deposits, and one we would expect them continue pursuing