Wealth should be spread across different investment vehicles to reduce the impact of political risk on long-term savings, says fund manager Lifeplan.
Matt Walsh, Lifeplan head, suggests investors should “spread their wealth” across different types of investment vehicle, each taxed at different rates: family trusts, superannuation, investment bonds and companies.
“To reduce the impact of political risk on long-term savings, investors should ideally spread their wealth across three types of vehicle,” Mr Walsh said.
“Investment bonds are a particularly good vehicle to complement super and diversify as a way to minimise the impact of political risk.”
Protection against the consequences of an uncertain political environment “clearly” requires diversification of asset classes. However, Mr Walsh said the need to diversify how investments are held is “not so widely understood”.
“The political risk in the choice of investment vehicles also needs to be considered,” he said, adding that superannuation is a prime example of a vehicle subject to these risks.
“We are reminded time and again that politicians cannot stop themselves from tinkering with super, especially the tax aspects that are what make superannuation so attractive as an investment vehicle,” Mr Walsh said.
He also noted that Australian investors typically associate political risk with “foreign countries with unstable governments”, but warned that Australia is not immune to similar hazards.
“Recent global events should remind us that every country has a degree of political risk, and Australian investors should now appreciate the impact on markets our own uncertain political outlook can have,” Mr Walsh said.
Political risk is “currently a major influence for Australian investors” because of the UK’s Brexit anxiety and uncertainty about leadership, as well as the “Trump factor” in the US.
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