As investors, we tend to focus on hard ways to increase returns, such as gaining experience over time, studying investment markets, trying to find a guru who can consistently pick winners, or just hoping for good luck.
But we tend to overlook that there is an easy way to lift our performance… and that is simply by using an organised process.
Over a series of articles in Nick’s Corner, I will introduce a process that may help you lift your SMSF performance over time. My goal is to help every SMSF lift their investment returns by one per cent over time, simply by using an organised approach, which includes appropriate benchmarking.
The process includes ensuring you are aware of the range of investment approaches available to you and regularly benchmarking how your current approach is going, using appropriate benchmarking information for self-managed superannuation funds.
As The Rub is a brand new publication, I see it as it is an ideal time to start with the basics, on issues such as “What Drives Investment Markets”, “Investment Performance Measurement” and “Benchmarking”.
Along the way we will also introduce a range of investment approaches available to trustees.
Even if you are an experienced investor, it can be helpful to test your understanding and maybe to have some of your beliefs and assumptions challenged. After all, sometimes just a small change can lead to better decisions and better outcomes over time.
What I have observed when presenting to audiences around the country is that self-directed SMSF trustees tend to behave a bit like football supporters. It’s as though there’s a group of people going around wearing a “shares” guernsey, another group going around wearing a “property” jumper and yet another group wearing a “cash” guernsey.
Depending on which group I am presenting to, the room tends to be full of like-minded people who feed on each other’s enthusiasm for their preferred asset class. It raises many questions such as:
- How did they come to be so passionate about one asset class?
- Have they considered investing with a combination of other asset classes?
- Are they fully aware of the range of investment approaches available to them?
- Do they have a clear picture of the life do they want, from their fund?
- How much risk do they need to take to achieve that life?
- Will their assumptions about current investment trends be a good bet?
- Do they know whether their investment behaviour has helped or hindered their performance?
Often investors fall into one investment approach or another based on how they have been “conditioned” to behave from their family, their peers or perhaps the media. They sometimes assume that their way is the best and will continue to be so.
Yet, it is hard for many SMSF trustees to even know what their investment returns have been, using a method that allows fair comparisons, let alone how it compares to an appropriate benchmark.
Therefore it is hard for those SMSF trustees to get affirmation that all is well, or an early warning that some action could be taken to keep on track.
Nick Shugg is the chief executive of SMSF Benchmarks, an on-line service designed to give SMSF trustees better information about how their fund is going. He has worked in the finance industry for 30 years, including as an adviser for 19 of these years.