Risks
However, while SMAs do offer several compelling advantages, they are not without their own set of risks and considerations that investors need to be aware of. One such concern is the fact that the capital value of SMAs may fluctuate, particularly over short-term periods can expose the investor to potential losses should the account be liquidated during a market downturn.
Additionally, there is also the potential liability of Income and Capital Gains Tax to consider. This may be due on any increase in the value of the investments when they’re redeemed or sold. The impact of this tax on the net return can be significant and should be factored into any investment decision.
It’s also essential to note that income distributions from SMAs are not guaranteed and can vary over time. This unpredictability may impact the anticipated return from the investment. Moreover, any income that is reinvested also forms part of assessable income for tax purposes, a fact that should be accounted for when considering an SMA investment.
Another important aspect to consider are the costs associated with SMAs. These costs include, but are not limited to, brokerage, management, and performance fees. It is crucial for investors to have a full understanding of these costs, as outlined in the Product Disclosure Statement (PDS), to ensure there are no surprises down the line and investors fully understand the comprehensive list of risks associated.
Lastly, investors must also remember that SMAs may include exposure to growth assets, such as shares. These kinds of assets can provide substantial long-term capital growth, which can be highly attractive. However, this comes with an elevated risk of loss, especially if an investor needs to withdraw within a shorter timeframe. Therefore, the time horizon of the investment should be carefully considered to manage this risk.
