Asset Allocation in Australia: Building the Right Portfolio Mix

Research consistently shows asset allocation has more impact on long-term returns than which specific shares or funds you pick. Australian shares offer strong long-term growth plus franking credits. International shares provide diversification beyond the ASX. Bonds and cash offer stability. Property (direct or via REITs like VAP) adds another layer.

A common starting point is the age-based formula: subtract your age from 110 to determine your shares allocation. A 30-year-old would hold 80% shares and 20% bonds or cash. With longer life expectancies in Australia (84 years on average), maintaining higher growth exposure is increasingly important.

Your super fund's investment option is a major part of your asset allocation. A MySuper default balanced option typically holds 60-70% growth assets (shares, property) and 30-40% defensive assets (bonds, cash). Switching to a high-growth option when you are young and have decades until preservation age can make a substantial difference.

The most common mistake is adjusting allocation based on emotion — shifting to cash after the ASX falls 20% and missing the recovery. A pre-committed allocation removes emotional decision-making. Set it based on your timeline, review it annually, and rebalance when needed.

Consider your total allocation across all accounts. If your super is 70% Australian shares and you also hold VAS outside super, your true allocation to ASX equities may be far higher than you realise. Think holistically across super, personal investments, and any investment property.