Leveraged superannuation

Peter Dunn, Scott Francis and Jason Hall

Accounting and Finance, 2009, vol. 49, issue 3, pages 505-529

Abstract: Rules governing superannuation investments are made with respect to investment-specific risks, rather than overall portfolio risks. In particular, legislation prohibits borrowing except in specific circumstances and on a non-recourse basis. We model the distribution of leveraged portfolio outcomes for a representative investor, accounting for their age-earnings profile, differing taxation of dividends, capital gains and franking credits, and the volatility of equity returns and interest rates. With explicit portfolio modelling, there is no need to categorize specific investments as 'too risky' on a stand-alone basis. We show that leverage is likely to enhance retirement outcomes for investors with low risk aversion. Copyright (c) The Authors. Journal compilation (c) 2009 AFAANZ.

Date: 2009

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