Personal investment decisions depend on an individual’s age, wealth and other personal circumstances, as shown by Rice Warner’s recently-published Personal Investments Market Projections 2015 report. The report analyses the $2.2 trillion in investments held outside superannuation and the family home.

Australians have always had a propensity for investing in property and it is no surprise that this is the largest personal asset. There is a similar amount held in cash and term deposits, which is a function of elderly Australians de-risking.

Surprisingly, equities still only represent 10% of personal investments directly held by households, yet those over 75 hold 19% in this asset class.

High net-worth individuals typically hold a significant proportion of their personal investments in direct equities (held in their own names, family trusts and family investment companies) and direct property. This is in addition to wealth in family businesses.

Similarly, high net-worth individuals have held an increasing proportion of their wealth in international investment assets, reflecting globalisation and deregulation of global capital markets.

By contrast, many middle-income Australian investors traditionally hold a large proportion of their non-superannuation personal investments in term deposits – assets that are easy to access and understand.

For investors with more assets, investment property has been a personal investment of choice – often being given priority over voluntary superannuation contributions.

A better understanding of the personal investment patterns and asset allocation decisions of investors from different age and wealth groups should assist the wealth industry participants to develop appropriate products and advice for different market segments.

Further, this should help to identify changing opportunities in the evolving $2.2 trillion-plus personal investments market over the next 15 years, as outlined in our Personal Investments Market Projections report.

Ages 15 to 24

A high proportion of assets of this age group are held in life saving products, platforms, managed funds and term deposits. This in part reflects the fact that parents and grandparents often make investments on behalf of young people; investments that continue to be held into their late teens and twenties.

These investors hold a much higher proportion of their personal investment assets (more than 40%) in investment products than other age groups, keeping in mind that they usually have relatively little income or other forms of wealth.

The typical higher engagement of young people with technology may make them more open to accessing investment products online. Additionally, managed funds are among the easiest ways to invest for those with few assets, providing diversity and liquidity.

The 15-24 age group holds almost 40% of their personal investments in cash. Young people have a low exposure to direct equities and few can afford to invest in direct property.

Ages 25 to 34

In the decade from their mid-twenties, average asset allocation to direct property markedly rises to 44% of their personal investments.

These investors are building their wealth and incomes with many apparently being willing to negatively-gear direct property. Some people in this cohort have chosen to buy investment properties but still rent themselves.

Ages 35 to 44

Exposure to direct property continues to rise significantly, reaching an average of 49% of personal assets at ages 35 to 44 – the highest of all age groups – and then remains relatively flat until 65.

The popularity of investment property is mainly due to such factors as record low interest rates; investor preference for physical, tangible assets that they can see, touch and feel; and tax incentives from the Capital Gains Tax (CGT) discount, depreciation and negative gearing.

Traditionally, the holding of a large proportion of personal investments in term deposits and cash has been the default position of all age groups. This is because of their widespread perception as safe, reliable, accessible and easily understood investments that have provided real returns for the past 20 years – including through the uncertainty of the GFC.

However, we anticipate that this level of exposure to cash and term deposits will continue to reduce as more investors seek advice on how to obtain a satisfactory yield in a low-interest era. Increasing levels of financial literacy are also expected to lead to a reduction in allocation to this asset class.

Ages 45 to 54

This age group maintains its strong allocation to direct property, allocating an average of 48% of their personal investments to this asset.

Allocation to managed funds and life products continues to reduce. Their exposure to term deposits remains high at 35% of personal investments, they show slightly less interest in term deposits (33%) and their holdings in direct equities are only a little higher (9%).

There has been a decline in allocation to direct equities in recent years across most age groups. This is attributable to market volatility and investor uncertainty.

However, Rice Warner projects an increase in allocations to direct equities – including through investment platforms and Exchange Traded Funds (ETFs) – as investors seek a low cost and simple means to access Australian and overseas markets in their search for yield.

Ages 55 to 64

The allocation of this age group to direct property begins to ease a little to 45% while their allocation to cash and term deposits rises to 41%.

This pattern could be attributable, in part, to an intention to simplify and adjust portfolios in preparation for retirement by reducing exposure to direct property while perhaps taking a more cautious approach with more cash and term deposits.

Another factor leading to a reducing exposure to direct property would be that many of the properties would no longer be negatively geared, losing some of their tax attraction.

Further, investors nearing retirement focus more on how to obtain adequate retirement income, looking for higher yields than provided by some direct property.

Ages 65 to 74

From age 65, investors continue to reduce their exposure to direct property – a pattern that will gather pace as they age.

For instance, investors in this age group have, on average, 40% of their personal investments in direct property against almost 50% for those aged from their mid-thirties to mid-forties.

Their interest in direct equities, cash/term deposits and equities begins to tick upwards, albeit slowly. Equities make up less than 11% of their average personal investments.

Ages 75 and over

This age group significantly reduces its allocation to direct property while also increasing allocation to direct equities and term deposits.

These older investors have an average of almost 20% of their personal investments in direct equities – by far the highest allocation to direct equities any age group. For some, trading in equities can be a leisure activity in retirement.

Equities may provide an appealing combination for retirees – liquidity, growth potential, yield and ease of trading.

It is understandable why older investors hold a much lower proportion of their personal investments only 20% on average in direct investment property – the lowest of any age group. Illiquid assets like property are not generally suitable for investors of his age who typically need to draw down on their assets for income. The complexity of direct property is also a likely deterrent.

The issues of age and wealth are almost indelibly linked. Investors tend to accumulate more wealth and investment knowledge with age. In turn, this is reflected in their changing investment patterns and opportunities.

Asset allocation by age