What are the major traits currently being displayed by our economy? I would go for low interest rates and a flourishing property market (too heated in certain parts!). This makes blue chip shares a very welcome idea, especially for Self-managed Super funds.
The advantages of blue-chip shares
What adds to the lure of the idea of blue-chip stocks?
Well, for one, they are very liquid in nature (unlike properties which can take months to settle) and can be sold off in a few minutes. The money reaches you on the third day itself and this turnaround time will get even quicker from here on.
For another, blue-chip shares help add to the franking credit of SMSF portfolios. The SMSF sector is aided by a lenient tax structure–something that its critics from other industry funds have rebuffed time and again–and the tax structure is convenient for getting tax credits from the franking credits paid by the “blue-chips”.
Speculation can be dicey, investing not so much
While the share market has proven (there is a handy sample set with which the conclusion can be drawn) that speculation can be a dicey business, investing in blue-chip shares and keeping them with you for a good few years have proven to be quite an effective method of money-making, too.
Judge your risk profile
However, next time you look at the dividend yield, growth potential or market cap of stocks, be sure to evaluate your risk profile beforehand. It is worth remembering that like your DNA, your risk profile may be completely unique and different from any investor you know.
SMSF investors are not overly cautious as proven by August bloodbath
SMSF owners have always been taken for a cautious breed of investors. This, however, is proving to be a myth perpetrated by rival funds. Their stock portfolio, if anything, is twice as diversified and the August bloodbath has shown that they can be really aggressive, too. When the whole share market fraternity was in shock and keeping itself out, SMSF investors went on a buying spree even as the market posted its worst trading day in recent memory.
Perhaps it would be nice for SMSF owners to diversify their portfolio into several asset classes and hedge their risks better. All this must be in alignment with their declared investment strategy.
SMSF compliance way too crucial
As a very important aside, they must not lose sight of compliance at any point. SMSF compliance is just as, if not more, important, what with the introduction of a stiffer penalty regime and ATO’s clearly demonstrated hatred for SMSF contraventions.