Interest rates are rising – should you realign your SMSF investments?


With interest rates well and truly on the rise, many Australians are concerned about how this may affect their investments. The good news is that if you run your own self-managed super fund, you have much greater control over your investments and can formulate a plan to navigate any potential market disruptions.

Rate rises are here – so now is the time to act

The enjoyable run of low interest rates has, inevitably, come to an end. With the Reserve Bank of Australia lifting rates for consecutive months and more pain expected this year, borrowers are understandably concerned about how this may impact their investments.

For SMSF investors, however, especially those who are approaching or at retirement age and living off the investments they generate, rising interest rates may actually be a good thing. Not only does it mean investments in term deposits will offer more attractive rates of return, but rising rates often mean the economy is growing and therefore corporate profits will increase – which is a boon for shareholders.

Investments to consider as rates rise

There is no silver bullet for making profitable investments as interest rates rise. However, there are some smart plays – albeit more conservative than others – that can potentially put your mind at ease that your investments are better protected against a disruptive market.

Over the past decade of record-low interest rates, term deposits haven’t offered much money-making value to SMSFs, aside from diversification. However, with interest rates rising, term deposits will also begin to offer higher rates than in the past.

There may also be value in residential mortgage-backed securities (RMBS). These are bonds that are secured against Australian property owners and pay out investors a regular monthly income. Importantly, as inflation and interest rates rise, so too do RMBS’ distribution returns.

Since shares make up a significant portion of Australian SMSF investments, this will likely continue even as interest rates rise. As always, it’s important to do your due diligence and measure the potential impact that inflation and rate rises will have on listed companies. Financial stocks and well-capitalised firms, for example, may be better prepared to weather economic uncertainty than small-cap stocks.

Diversification is your best friend

There’s much to be said for the power of diversification even in a thriving economy. Rather than putting all your SMSF investment eggs in one basket, by diversifying across cash, term deposits, shares, property and even physical commodities, you can spread your risk across multiple assets and therefore have a better chance of reducing the impact of market fluctuations.

“While younger Australians with SMSFs will have several decades to recoup any potential losses they incur in a tightening economic climate, those approaching retirement don’t have that luxury,” says Daran Thomson, Managing Director at Hallmark Consulting. “So with interest rates rising in an attempt to curb inflation, now is a good time to review your SMSF investments to see if a new strategy could better protect your retirement fund.”

Navigating a fast-evolving economic environment can be challenging, especially when you are solely responsible for how you invest your superannuation. For SMSF support, contact Hallmark Consulting Finance or call 1300 135 295.