Investment risk
Risk and return are linked: assets that offer higher potential returns generally carry a greater chance of short-term loss. The job of an investor is not to avoid risk altogether (cash loses value to inflation over time) but to take an appropriate level of risk for their goals, timeframe and temperament.
Your risk profile reflects three things: your capacity to bear loss (how much you can afford to lose without derailing your plans), your timeframe (longer horizons can ride out volatility), and your tolerance (how you actually feel when markets fall). For SMSF trustees, this is a decision you make yourselves rather than delegate — so being honest about all three matters.
Volatility — how much an asset's value moves up and down — is the most visible risk, but not the only one. The next tab covers the specific types of risk you'll meet.
Use the risk-profile tools and calculators on this site to think through your own position.
Types of risk
"Risk" is not one thing. The main types you'll encounter:
- Market risk — the whole market falls (a recession, a shock), dragging most assets down together.
- Specific risk — a single company or asset does badly for its own reasons. Diversification reduces this.
- Liquidity risk — you can't sell quickly without accepting a lower price (property is the classic example).
- Credit risk — a borrower (e.g. a bond issuer) fails to pay you back.
- Inflation risk — your returns don't keep pace with rising prices, so your money buys less over time. This is the hidden risk of holding too much cash.
- Interest-rate risk — rising rates push down the value of existing bonds and can pressure shares and property.
- Currency risk — when you hold international assets, movements in the Australian dollar change your returns even if the asset itself hasn't moved. A rising AUD reduces the value of your overseas holdings in dollar terms; a falling AUD increases it. Some international funds are "hedged" (currency risk removed) or "unhedged" (you wear the currency movement) — worth checking which you hold.
- Sequencing risk — the order of returns matters near retirement: a big loss just as you start drawing down does more damage than the same loss earlier.
No single asset avoids all of these. The point of a portfolio is to combine assets whose risks don't all strike at once.
Diversification
Diversification means spreading your money across different assets so that no single failure can sink the whole portfolio. It's the one genuinely "free" risk reduction in investing: by combining assets that don't all move together, you can lower the overall volatility without necessarily lowering the expected return.
Diversification works on several levels: across asset classes (shares, property, bonds, cash), within an asset class (many shares, not one), across geography (Australian and international), and across time (investing regularly rather than all at once).
For SMSF trustees this is more than good practice — your fund's investment strategy must address diversification, and the law requires trustees to consider it. A fund with, say, a single geared property and little else is a recognised concentration risk and should be a deliberate, documented decision rather than an accident.
The portfolio tools on this site let you see how different mixes change the risk and return picture.
Australian shares
General
Australian shares represent part-ownership of companies listed on the ASX. Returns come two ways: capital growth (the share price rising) and dividends (a share of profits). Over the long run shares have historically outperformed cash and bonds, with more short-term volatility. A distinctive Australian feature is franking credits (dividend imputation): when a company has already paid tax on its profits and pays a "franked" dividend, you receive a credit for that tax, which can reduce or refund your own tax.
Buying within super
- Dividends are taxed at the fund's rate of 15% (accumulation) or 0% in pension phase.
- Franking credits are where super shines. Because the fund's rate is low or nil, franking credits often exceed the fund's tax on the dividend, and the excess is refunded to the fund in cash. A pension-phase fund paying no tax can receive the full credit back.
- Capital gains taxed at 15%, effectively 10% if held over 12 months; tax-free in pension phase.
- Super is excluded from the 2027 personal CGT changes — it keeps its existing concessional CGT treatment.
- Division 296: from 2026–27, members with a total super balance over $3m face an additional 15% on the proportion of realised earnings above that ( 25% above $10m). A large share portfolio in super can be affected, but only on the balance above the threshold.
- SMSF rules: the in-house asset rule caps related-party investments at 5% of fund assets; acquiring shares from a related party is generally prohibited (limited exception for listed securities at market value).
Buying outside super (personally)
- Dividends added to your income, taxed at your marginal rate (up to 47% incl. Medicare). Franking credits offset this; excess credits refunded only where your total tax is low.
- Capital gains — changing. For gains accruing after 1 July 2027, the 50% discount is replaced by cost-base indexation (tax on the real gain only) plus a 30% minimum tax. This applies to all CGT assets including shares. Gains accrued before 1 July 2027 are grandfathered with the existing 50% discount. (Detailed rules still being finalised.)
- Full flexibility — no preservation rules — but marginal-rate tax and the tougher post-2027 CGT regime.
The trade-off in a sentence: super offers a much lower tax rate and franking-credit refunds (especially in pension phase) and is shielded from the 2027 CGT changes, but locks money away and may attract Division 296 on very large balances; personal ownership stays fully accessible but is taxed at your marginal rate and now faces the tougher post-2027 CGT rules.
Ask AIThis feature is reserved for subscribersInternational shares
General
International shares give you exposure to companies listed overseas — the US, Europe, Asia and emerging markets. They broaden diversification well beyond Australia's relatively narrow, financials-and-resources-heavy market, and give access to industries (large-scale technology, healthcare, consumer brands) under-represented on the ASX. The trade-off is currency risk: your returns move with the Australian dollar as well as the underlying shares. International shares generally pay lower dividends than Australian shares and carry no franking credits.
Buying within super
- Dividends and realised gains taxed at the fund's 15% (accumulation) or 0% (pension), same as other assets.
- No franking credits — foreign dividends don't carry Australian imputation, so the franking advantage that makes Australian shares so tax-effective in super doesn't apply here. Foreign withholding tax may be deducted at source; foreign income tax offsets may be available to the fund.
- Capital gains effectively 10% if held >12 months, 0% in pension phase. Super is excluded from the 2027 CGT changes.
- Division 296 applies on the same balance-above-$3m basis.
- Most SMSFs access international shares via ETFs or managed funds rather than buying foreign shares directly — simpler custody and admin.
Buying outside super (personally)
- Foreign dividends taxed at your marginal rate; foreign income tax offsets may reduce double taxation. No franking credits.
- Capital gains subject to the post-1 July 2027 indexation + 30% minimum tax regime (pre-2027 gains grandfathered at the 50% discount).
- Currency movements affect your return either way; consider whether you want a hedged or unhedged exposure.
The trade-off in a sentence: international shares add valuable diversification but lose the franking-credit advantage that makes Australian shares so tax-effective in super; in both environments you also take on currency risk, and personally held gains face the post-2027 CGT regime.
Ask AIThis feature is reserved for subscribersExchange-traded funds (ETFs)
General
An exchange-traded fund (ETF) is a fund that trades on the ASX like a share. Most ETFs are passive — they track an index (e.g. the ASX 200, or a global share index) at very low cost — though active ETFs also exist. One trade buys you a diversified basket, which is why ETFs have become a core building block for both SMSF and personal portfolios. Key attractions: low fees, instant diversification, transparency, and easy buying/selling. Watch for the difference between the trading price and the fund's underlying value, and check whether an ETF is physically backed or synthetic.
Buying within super
- Taxed like the assets it holds: distributions at 15%/0%, capital gains effectively 10% (>12 months) or 0% in pension.
- An Australian-share ETF passes through franking credits — so a fund in pension phase can still receive franking refunds via the ETF. This makes broad Australian-share ETFs particularly tax-effective in super.
- ETFs sidestep most SMSF related-party concerns (they're listed, widely held), making them an administratively simple core holding.
- Division 296 applies on the usual balance-above-$3m basis.
Buying outside super (personally)
- Distributions (incl. any franking on Australian-share ETFs) taxed at your marginal rate; capital gains under the post-2027 indexation + 30% min tax regime for gains after 1 July 2027 (earlier gains grandfathered).
- Note ETFs can distribute realised capital gains annually, which you're taxed on even if you didn't sell — relevant to your personal tax planning.
The trade-off in a sentence: ETFs give low-cost instant diversification in either environment, and Australian-share ETFs preserve franking credits inside super; held personally, their gains and distributions fall under your marginal rate and the post-2027 CGT rules.
Ask AIThis feature is reserved for subscribersManaged funds
General
A managed fund pools investors' money and has a professional manager invest it according to a stated mandate. Unlike an ETF, a traditional (unlisted) managed fund isn't traded on an exchange — you buy and sell units directly with the fund manager at the daily unit price. Managed funds offer access to professional management and asset classes that are hard to reach directly, but typically charge higher fees than passive ETFs, and active managers don't always beat their benchmark after fees.
Buying within super
- Distributions and realised gains taxed at 15%/0% in the usual way; Australian-share funds pass through franking credits.
- Managed funds report distributions on an annual tax statement (AMIT/standard distribution statement) that the fund's tax return relies on — a routine but real admin item for SMSF trustees.
- A managed fund can distribute realised capital gains to the fund even in a year the fund didn't sell units — affecting the fund's tax position.
- Division 296 applies on the balance-above-$3m basis.
Buying outside super (personally)
- Distributions taxed at your marginal rate each year, including any realised gains the fund passes through — you can owe CGT without having sold anything.
- Your own capital gains on selling units fall under the post-2027 indexation + 30% min tax regime (pre-2027 grandfathered).
The trade-off in a sentence: managed funds buy professional management and hard-to-reach asset classes in either environment, but at higher fees than ETFs; the annual pass-through of income and gains is taxed at 15%/0% in super versus your marginal rate personally.
Ask AIThis feature is reserved for subscribersListed property (REITs)
General
A Real Estate Investment Trust (REIT) gives you property exposure through the sharemarket. Listed on the ASX, REITs own portfolios of commercial property — office towers, shopping centres, industrial warehouses, sometimes residential — and pass the rental income to investors as distributions. REITs offer property exposure with the liquidity of a share (you can sell in a day), instant diversification across many buildings, and a low entry cost — the opposite of direct property's illiquidity and concentration. The trade-off is that REIT prices move with the sharemarket, so they're more volatile day-to-day than the bricks-and-mortar they hold.
Buying within super
- Distributions and gains taxed at 15%/0% in the usual way; effectively 10% CGT if held >12 months, 0% in pension.
- REITs neatly sidestep the SMSF direct-property rulebook — no LRBA, no sole-purpose complications, no in-house asset issues, no business-real-property tests. For a fund wanting property exposure without the regulatory load, REITs are the simple path.
- REIT distributions often include a tax-deferred component, which the fund accounts for in cost base — routine admin.
- Division 296 applies on the balance-above-$3m basis.
Buying outside super (personally)
- Distributions taxed at your marginal rate; the tax-deferred component reduces your cost base (bringing forward CGT to when you sell).
- Capital gains on sale under the post-2027 indexation + 30% min tax regime (pre-2027 grandfathered). REITs are not subject to the residential negative-gearing restrictions — those target direct residential property.
The trade-off in a sentence: REITs give liquid, diversified property exposure that avoids the SMSF direct-property rulebook entirely, but trade with sharemarket volatility; in either environment they're taxed as listed investments rather than as direct property.
Ask AIThis feature is reserved for subscribersDirect property
General
Direct property means buying an actual property — residential or commercial — rather than property exposure through shares or a fund. It's the asset most SMSF trustees are drawn to: tangible, familiar, producing rental income and capital growth. It also has the least liquidity, high transaction costs (stamp duty, agents, legals) and concentration risk. For SMSFs it carries the most regulatory complexity of any asset, and the borrowing rules changed in 2026 — breaching them can make the fund non-compliant.
Buying within super
- Sole purpose test: the property must be held solely to provide retirement benefits. It cannot be lived in or used by members or relatives — not even occasionally.
- Borrowing — major 2026 change. Following the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (Royal Assent 26 June 2026), an SMSF can no longer use an LRBA to buy residential property — established or new. From commencement (about 45 days after assent, ~mid-August 2026), an LRBA over real property is only permitted where the asset is business real property. Existing residential LRBAs are grandfathered (and can be refinanced); contracts entered before commencement are preserved.
- What you can still do: buy residential property outright (unleveraged) if it suits the fund's strategy; and use LRBAs for commercial/business real property — which is why business owners commonly hold their business premises in their SMSF and lease them back at market rent (business real property can be acquired from a related party at market value).
- In-house asset rule: leasing residential property to a related party is prohibited; the 5% in-house asset cap applies.
- Tax: rent taxed at 15% (0% pension); CGT effectively 10% if held >12 months, 0% in pension. Super is excluded from the 2027 personal CGT changes.
- Division 296: a single property can push a member over $3m; realised earnings (rent and realised gains) on the balance above $3m attract the extra 15% (25% above $10m). The once-off SMSF election to reset cost bases to market value at 30 June 2026 (Division 296 only) may matter for funds near the threshold.
Buying outside super (personally)
- Negative gearing — major 2026 change. For established residential property acquired after 7:30pm AEST 12 May 2026, from 1 July 2027 you can no longer offset rental losses against salary or other income — only against residential rental income or residential capital gains (carried forward if unused). Property held or under contract before that date is grandfathered. New builds are exempt — they keep negative gearing and a choice of the 50% discount or indexation.
- Capital gains: for gains after 1 July 2027, the 50% discount is replaced by indexation + 30% minimum tax (earlier gains grandfathered).
- You can use the property yourself, rent to anyone, renovate freely; ordinary borrowing (no LRBA) is simpler and usually cheaper than SMSF lending.
The trade-off in a sentence: an SMSF offers a low-tax environment (especially in pension phase) and lets business owners hold their premises in super, but can no longer borrow for residential property and may attract Division 296 on large balances; personal ownership allows unrestricted use and (for new builds or pre-12-May-2026 properties) negative gearing, but now faces the tougher post-2027 negative-gearing and CGT rules.
Ask AIThis feature is reserved for subscribersFixed interest & bonds
General
Fixed interest investments — government and corporate bonds, and bond funds — lend money to an issuer in return for regular interest and the return of capital at maturity. They sit below shares on the risk/return ladder: lower expected returns, but steadier, and they often hold up when shares fall, which is why they're a core diversifier and a common choice as investors approach retirement. Main risks: credit risk (the issuer defaults) and interest-rate risk (existing bonds fall in value when rates rise).
Buying within super
- Interest income taxed at 15% (accumulation) or 0% (pension) — the low super rate is meaningful for income-producing assets like these.
- Capital gains (if a bond or bond-fund unit is sold for more than cost) effectively 10% if held >12 months, 0% in pension.
- Most SMSFs access fixed interest via bond ETFs or managed funds rather than buying individual bonds, which can have large minimums.
- Division 296 applies on the balance-above-$3m basis — and because Division 296 counts realised interest as earnings, income-heavy assets contribute to it.
Buying outside super (personally)
- Interest taxed at your marginal rate each year — up to 47% incl. Medicare — making fixed interest relatively tax-inefficient held personally for higher earners.
- Any capital gains on sale fall under the post-2027 indexation + 30% min tax regime (pre-2027 grandfathered).
The trade-off in a sentence: fixed interest provides ballast and income in either environment; the steady interest it produces is taxed at just 15% (or 0% in pension) inside super versus your full marginal rate personally, so it's often more tax-efficient held in super.
Ask AIThis feature is reserved for subscribersCash & term deposits
General
Cash — high-interest savings accounts and term deposits — is the safest asset: your capital doesn't fluctuate, and deposits with Australian banks are covered by the government's Financial Claims Scheme up to the cap per account-holder per institution. The cost of that safety is inflation risk: over time, cash typically loses purchasing power because its return barely keeps pace with rising prices. Cash earns its place as a buffer, for short-term needs, and for an SMSF's liquidity (to pay pensions, expenses and tax) — not as a long-term growth engine.
Buying within super
- Interest taxed at 15% (accumulation) or 0% (pension).
- Every SMSF needs a working cash balance — to pay pensions, the annual audit, the supervisory levy, insurance premiums and any tax. Liquidity planning is a trustee responsibility, especially for funds holding a large illiquid asset like property.
- The within/outside difference is small for cash, but the super rate still beats marginal rates for most members.
- Division 296 counts interest as realised earnings on the balance-above-$3m basis.
Buying outside super (personally)
- Interest taxed at your marginal rate — the least tax-efficient outcome for higher earners.
- Fully accessible at any time, which is the main reason to hold cash personally rather than locking it in super.
The trade-off in a sentence: cash is the safe, liquid buffer in either environment and an SMSF must hold some for expenses and pensions, but its interest is taxed at just 15%/0% in super versus your marginal rate personally; held anywhere, its real enemy is inflation.
Ask AIThis feature is reserved for subscribersInvestment bonds
General
An investment bond (also called an insurance bond) is a managed investment held inside a tax-paid structure offered by a life company or friendly society. The bond itself pays tax on earnings at 30% internally, and if you hold it for at least 10 years (and observe the 125% contribution rule), withdrawals are tax-free in your hands. They're a personal-tax-planning tool — useful for high earners investing outside super, for estate planning, or for goals like funding education — rather than a super asset.
Buying within super
- Investment bonds are generally not used inside super, and rarely make sense there. Super already offers a lower tax rate (15%/0%) than the bond's internal 30%, so wrapping a tax-paid structure inside an already-low-tax environment defeats the purpose.
- If the question is "tax-effective long-term investing inside super", the super environment itself is the answer — not an investment bond.
Buying outside super (personally)
- This is where investment bonds belong. Earnings taxed internally at 30% — attractive if your marginal rate is higher than 30%.
- Hold 10+ years and the proceeds are tax-free to you; the 125% rule lets you add up to 125% of the prior year's contribution each year without restarting the 10-year clock.
- Useful for high earners who have maxed super contributions, for estate planning (you can nominate beneficiaries outside your will), and for education or other medium-term goals.
- Not affected by the 2027 CGT changes in the same way — the bond's internal tax-paid structure is the mechanism, not the CGT discount.
The trade-off in a sentence: investment bonds are a personal-capacity tax structure for (typically high-income) investors outside super and generally have no role inside super, since super's own 15%/0% rate already beats the bond's internal 30%.
Ask AIThis feature is reserved for subscribersCollectibles & personal-use assets
General
Collectibles include art, antiques, jewellery, wine, classic cars, coins, stamps and memorabilia. They can appreciate and bring enjoyment, but as investments they're illiquid, hard to value, costly to insure and store, produce no income, and depend heavily on fashion and provenance. For SMSFs, collectibles are governed by strict, specific rules — this is one of the most rule-bound asset classes a fund can hold.
Buying within super
- An SMSF can hold collectibles, but under tight conditions designed to enforce the sole-purpose test (the asset must be for retirement benefit, not present-day enjoyment):
- No personal use or display: the item cannot be used by, or stored in the residence of, any member or related party. A painting can't hang in your home or office.
- Storage decisions documented: trustees must record (and minute) where the item is stored, and it cannot be stored in a related party's private residence.
- Insurance: the item must be insured in the fund's name within 7 days of acquisition.
- Arm's-length sale/transfer: any sale or transfer to a related party must be at market value determined by a qualified independent valuer.
- These rules make collectibles administratively heavy for an SMSF — many trustees conclude the compliance burden outweighs the benefit.
Buying outside super (personally)
- Held personally, collectibles are unrestricted — you can enjoy, display and store them however you like.
- Tax: personal-use assets and collectables have their own CGT rules (e.g. collectables acquired for under $500 are generally CGT-exempt; personal-use assets under $10,000 are disregarded for CGT). Gains above the thresholds are subject to CGT, now under the post-2027 indexation + 30% min tax regime for gains after 1 July 2027.
The trade-off in a sentence: collectibles can be held in an SMSF only under strict no-personal-use, storage, insurance and valuation rules that make them administratively heavy; held personally they're unrestricted and you can actually enjoy them, with their own special CGT thresholds.
Ask AIThis feature is reserved for subscribersCryptocurrency
General
Cryptocurrency (Bitcoin, Ethereum and thousands of others) is a digital asset that's highly volatile, speculative, and not backed by any government or physical asset. Prices can move dramatically in both directions, and the sector carries real risks: exchange failures, hacking, lost keys, scams, and an evolving regulatory picture. It's increasingly asked about by SMSF trustees, and an SMSF can hold it — but only if the strict super rules are met, and trustees should size any allocation in line with how speculative it is.
Buying within super
- An SMSF can hold cryptocurrency, but it must satisfy the usual requirements: allowed by the fund's trust deed and investment strategy, held in the fund's name (separate from members' personal holdings), properly valued at year-end, and consistent with the sole purpose test.
- Separation is critical: the crypto must be held in a wallet/exchange account in the fund's name, never mixed with a member's personal crypto. Documentation and clear ownership are essential at audit.
- Crypto generally can't be acquired from a related party (it's not a listed security or business real property).
- Gains taxed at 15%/effectively 10% (>12 months)/0% in pension. Division 296 applies to realised gains on the balance above $3m.
- Given the volatility, diversification and liquidity-planning obligations make a very large crypto weighting hard to justify for most funds.
Buying outside super (personally)
- Held personally, crypto is treated as a CGT asset — each disposal (including crypto-to-crypto swaps and using crypto to buy goods) is a CGT event you must track.
- Gains after 1 July 2027 fall under the indexation + 30% min tax regime (earlier gains grandfathered at the 50% discount where held >12 months).
- Record-keeping is demanding — every transaction across every wallet and exchange.
The trade-off in a sentence: an SMSF can hold crypto only with strict separation, valuation and sole-purpose compliance and should keep the allocation modest given its volatility; held personally it's simpler to acquire but every transaction is a CGT event you must track, now under the post-2027 rules.
Ask AIThis feature is reserved for subscribersPrecious metals
General
Precious metals — gold, silver, platinum — are often held as a hedge against inflation, currency weakness and market turmoil. Gold in particular tends to hold or gain value when shares fall, which is its main portfolio role. Metals produce no income (no dividends or interest), can be volatile, and physical holdings bring storage and insurance costs. You can hold them physically (bullion, coins) or via gold ETFs and funds, which most investors find simpler.
Buying within super
- An SMSF can hold precious metals, but physical bullion is treated carefully: it must be held to meet the sole-purpose test, securely stored (not in a member's home), insured, and properly valued. Bullion coins may also fall under the collectibles rules if they're more collectible than investment-grade — a line trustees must consider.
- Most SMSFs get metals exposure via gold/precious-metal ETFs, which avoid the storage, insurance and collectible-rule complications entirely — the simple path.
- Gains taxed at 15%/effectively 10% (>12 months)/0% in pension; Division 296 on realised gains above the $3m balance.
Buying outside super (personally)
- Held personally, physical metals and metal ETFs are unrestricted; gains are CGT events under the post-2027 indexation + 30% min tax regime (pre-2027 grandfathered).
- Physical bullion brings storage and insurance costs and no income; ETFs are simpler to hold and sell.
The trade-off in a sentence: precious metals act as an inflation and crisis hedge in either environment but produce no income; an SMSF holding physical bullion takes on storage, insurance and possible collectible-rule complexity, which gold ETFs avoid entirely.
Ask AIThis feature is reserved for subscribers