According to the Australian Taxation Office, just under a quarter of SMSF money is held in cash and term deposits - second only to listed shares. Almost a quarter of SMSFs had at least 50% of their portfolio invested in cash and term deposits1.

Given these numbers, effective cash management should be a critical consideration of your investment strategy to help you achieve your desired retirement lifestyle.

Protecting against volatility

Cash may provide a buffer against market volatility, protecting you from sudden market moves.

This might be less important when you are growing your super and have more time to ride out market dips. But as you approach retirement - and while you’re in the pension phase - you have less time for your investments to recover, as you’ll be drawing down on them sooner.

Cash has the potential to offer fixed returns with a minimal chance of capital loss - outcomes favoured by conservative investors.

Covering expenses

Cash can be used to cover your SMSF’s expenses - such as investment charges, taxes, legal and adviser fees, administration costs, and insurance premiums - even your pension payments.

At times when your other investments might not be delivering the income you expect, your cash holdings could be used to cover these regular costs. That way you might avoid having to sell investments in an unfavourable market to pay your fund’s expenses or your pension.

What’s more, by keeping some of your SMSF as cash, you have some flexibility to consider new investment opportunities should they arise.

Getting the right mix

If you are retired, deciding how much cash you would like to have as part of your super might be determined by what you think your living expenses could be over the next year, or several years.

In the accumulation phase, you may only need to hold enough cash to cover fund expenses, unless you wish to hold a certain level of cash for investment opportunities.

Cash typically generates a lower investment return than other asset classes, particularly in a low interest rate environment.

While you’re legally required to open a bank account for your SMSF to receive contributions and investment income, taking a more active approach to managing your cash exposure could assist in achieving more balance with your investments.

Making your cash work harder

One strategy might be to lock in fixed returns through a long-term deposit account. Because you choose when you want your deposit to mature, you can stagger these over time - helping you manage your cash flow requirements.

For example, after you retire you may decide to store cash in three separate term deposits of varied periods of time. These can provide a steady income through the first stage of your retirement, while unlocking funds at regular intervals. If you don’t need this cash immediately once the term expires, you can reinvest it in a new term deposit or some other asset.

There are other cash strategies that might help you reach your SMSF objectives. Cash management accounts can offer tiered interest, with the top rate kicking in once you reach a certain account balance.

Managing your cash flow

To take control of your SMSF cash flow, you might consider setting up a cash hub, such as our SMSF cash account, the Commonwealth Direct Investment Account(CDIA).

You can view and manage your SMSF cash flow including rollovers, contributions, investments, and fund expenses all in one place. This streamlines your finances and makes it easy to get a snapshot of your cash position.

When you trade shares with CommSec and settle directly through your SMSF CDIA you’ll get discounted brokerage.2

How you manage any cash in your fund can form part of your diversification and investment strategy and has the potential to impact the overall performance of your SMSF and the lifestyle you are aiming for in retirement.

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1 Australian Taxation Office (ATO) Self-managed super funds: a statistical overview 2016–2017 -

To be eligible for discount brokerage you are required to trade online, be CHESS sponsored and have your SMSF CDIA linked for settlement. Commonwealth Securities Limited ABN 60 067 254 399 AFSL 238814 (CommSec) is a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945, and a participant of the ASX Group and Chi-X Australia. Commonwealth Bank of Australia and its subsidiaries do not guarantee the obligations or performance of Commonwealth Securities Limited or the products or services it offers.

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Past performance is not an indication of future performance. Investors should consult a range of resources, and if necessary, seek professional advice, before making investment decisions in regard to their objectives, financial and taxation situations and needs because these have not been taken into account.

Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information. Commonwealth Bank is also not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and you should seek tax advice from a registered tax agent or a registered tax (financial) adviser if you intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law. While potential SMSF investments have been illustrated within this content they do not represent a comprehensive suite of possible investment products and services within the guidelines pursuant to the SIS Act 1993 with ATO oversight.