“While such a strategy may be suitable for risk-tolerant trustees with a long-term investment horizon, larger allocations to growth assets such as shares and property may be risky for investors nearing retirement and share or property markets correct,” he said.

“While the broader outlook is cautiously optimistic, with growth expected in certain sectors, the market remains susceptible to macroeconomic shifts and structural adjustments. Diversification and a focus on resilient sectors may be key strategies for investors in 2025.”

Arraj said SMSFs could benefit from a more balanced approach to asset allocation which encompasses greater allocations to defensive assets.

“These investments have historically offered attractive yields, which is very important to all investors, particularly those in retirement and who rely on an alternative and regular income source,” he said.

“A more balanced strategy may be wiser, involving a greater mix of income or fixed-income assets which offer greater capital protection, along with riskier growth assets such as equities and direct property. This strategy better balances risk and return and would be suitable for SMSFs that need to generate income from their investments, which private credit can deliver.”

Furthermore, Arraj said term deposit and savings account interest rates have fallen in 2024, which is eroding the real return SMSFs receive on their cash investments.

“The average interest rate on three-year term deposits fell to 3.35 per cent in October this year, the lowest level in two years and down from 4 per cent in January, according to data from the Reserve Bank of Australia. One-year term deposits fell to 4.25 per cent in October 2024 from 4.55 per cent in January,” he said.

However, he said that private credit, a form of fixed income linked to property and corporate lending, can provide attractive yields with lower volatility.

“For income-seeking investors, private credit investments can deliver returns close to 10 per cent per annum, significantly higher than typical yields on cash or residential properties,” Arraj added.

“For SMSF investors seeking higher yields, now could be a good time to consider reallocating some of their assets to private credit. With more fund managers now offering private credit investment products, the asset class is now accessible to SMSF investors.”

Additionally, he said, this opens up a new avenue for diversification and income generation, allowing SMSFs to build more resilient portfolios that generate higher risk-adjusted returns that are secured by familiar property assets.

“Ultimately, diversification into fixed income can enhance the long-term sustainability and balance of SMSFs, ensuring the preservation of wealth and consistent growth,” Arraj said.

“But a word of caution. It is important to invest with an experienced private credit fund manager to maximise the benefits offered by the asset class. A manager with a strong focus on robust loan selection and track record will be key to a successful investment.”