The Big Risks of DIY SMSF Investment

December 3, 2016

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By Yannick Leko

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The Big Risks of DIY SMSF Investment
Posted on Saturday, December 3rd, 2016

One of the attractions of SMSFs is that they allow self-determination of investments.

However, individuals who have little or no investment experience and may have previously relied on external investment advice, have fallen behind the curve when it comes to returns over the last recent history.

According to a report by the SMSF Professionals Association of Australia (SPAA), SMSF funds have almost a third of their investment in cash. The amount in equities has fallen over the last couple of years to a fraction more than 36%, and residential property only constitutes 10% of funds.

With the amount invested in DIY super funds now larger than in traditional retail funds, the SPAA report tells us that the majority of DIY super funds have under performed.

SMSF investors, hurt by the fall in stock and property markets in 2008/9, have largely failed to return to these assets, and missed out on the huge rises they have seen since. 

DIY SMSF Mistakes

It’s clear that DIY investors in SMSFs are led by sentiment and fear of markets. Because of this psychology they are failing with their investment strategies:

  • Risk is seen as the potential for losses and not as the lost opportunity to make returns.
  • Too often, SMSF trustees feel the need to select winning stocks and sectors rather than concentrate on an overall strategy divesting across assets.
  • Individuals with little investment experience tend to stick to what they know and what they are comfortable with. For many, this means an over-reliance on cash to produce the returns they desire.
  • Under-educated financially, DIY trustees have little understanding of the need to align future goals and ambitions with investment asset potential. When this happens, the outcome is a massive undershooting of investment potential, completely negating the advantages of SMSF investment.

What you can do to ensure your goals are aligned with SMSF potential

The earlier you take positive action with your SMSF, the more likely your longer-term investment goals will be achieved. Being an SMSF holder does not mean you have to ‘go-it-alone’. Experts here at SMSF Loan Experts are experienced in helping Australians from all walks of life to create an investment plan that will turn goals and ambitions into investment strategy.

Peter Mastroianni
Peter Mastroianni is a property finance expert and the co-founder of Loans Only, specialising in investment lending. He is the author of two top-selling real estate books and host of The Rentvesting Podcast. Peter is passionate about supporting the next generation of investors rethink the traditional home ownership model. He does this by championing the ‘Rentvesting’ strategy through www.rentvesting.com.au.

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