DIY Superannuation Investing

Knowledge is probably the greatest asset anyone can have because once you have knowledge of a particular subject, it stays with you forever. You can’t lose it or unlearn that knowledge and no-one can steal it from you. That’s why gaining knowledge about the art of investing is so important and can be the difference between success (increasing your wealth) and failure (watching it disappear right before your eyes).

Remember that age old adage “Knowledge is power”. Well, when it comes to most things, he who has the knowledge usually calls the shots and controls the decision making process, particularly in business. For those of us who want to take control of our superannuation, whether you are a self funded retiree or perhaps running your own business, the best vehicle for doing this is to set up a Self Managed Superannuation Fund (SMSF).

One of the great advantages of having a SMSF is that is gives the trustees of the fund complete control over the decision making process for investment purposes. The ironic thing is, as soon as a person decides to set up a SMSF, the next thing they do is hand over that decision making process for the investment of their hard earned retirement funds to their financial adviser, a stockbroker or a fund manager. The main reason they do this is because they lack the necessary knowledge of how to invest in the stock market intelligently and with confidence.

It is understandable that someone would engage an accountant, lawyer or superannuation service provider to set up and administer their SMSF because of the regulatory and compliance responsibilities placed on trustees. Figures from last financial year indicate over 10% of SMSF’s face being shut down, losing their complying status or being subject to heavy fines from the ATO because of deliberate and accidental breaches of superannuation legislation and investment rules. The biggest breaches involved personal loans to fund members or private businesses run by fund members. Other breaches include buying ‘in-house’ assets from fund members (such as residential investment properties) and leasing them back, not keeping personal and fund assets separate (i.e. holding super fund assets in personal names) and not appointing all members as trustees. Breaches like these make utilising the services of these professional firms necessary for most of us wanting to access the benefits of having a SMSF in place because they have the requisite knowledge of these regulatory and compliance laws, particularly income tax laws.

Of course there is no reason why you can’t set up and administer your own SMSF, you would just need plenty of time to learn how to do it properly, a luxury most of us without the right background and experience just do not have. Although we cover the basics of superannuation administration and compliance in the superannuation section of our SMSF Investor course, the majority of us would do well to engage the right professional services to ensure that we comply with the regulatory and compliance requirements placed on trustees. Understanding your responsibilities as a SMSF trustee is one thing, but making sure that your SMSF is being administered correctly will help avoid any nasty surprises from the authorities.

But what about the investment side of running a SMSF?

Do you need to engage a stockbroker, financial adviser or fund manager to do the investing of your hard earned money for you? The answer to that question is No, not necessarily.

Most self funded retirees who have lost significant amounts of their retirement savings as a result of investing through a traditional retail superannuation fund or fund manager, and being charged high fees and commissions for the privilege, are now deciding to set up their own SMSF to take back control of the investment decision making process themselves. This is probably because they can’t do any worse than what they have just experienced in terms of their super fund losses. The problem is, they have never had to run their own super fund before and find the investment decision making process confronting. So, as a SMSF trustee, what are your options?    

Investment options

After making the important decision to start up a SMSF, the next and probably most challenging decision for you to make is what to do with your superannuation money. If you are a self employed person or business person, you may not have a significant amount of money to invest when you start out as you will slowly be accumulating your retirement savings inside your SMSF over time. If you have just retired, you may be sitting on a large lump payment from your employer super fund, so the decision about what to do next can be a very serious and quite often stressful one.

Whether you are a business person, self employed person or self funded retiree, there are a number of options available to you and all except one requires you to effectively hand over the responsibility of controlling the investment decision making process to someone else. These options are:

1. Engage a stockbroker to invest with;

2. Allow your financial adviser to invest funds on your behalf;

3. Deposit your cash directly with a fund manager; or

4. Do it yourself.

Most people will choose between options 1 and 3. Very few people are prepared to have a go themselves and choose option 4. Why? It comes down to knowledge.

The main reason SMSF investors choose Options 1-3 is because they either lack knowledge in the area of investing or don’t trust their own judgment when it comes to investing.

If there was a way that SMSF investors could study the basics about investing inside their SMSF that was not overly cumbersome, was easy to understand and didn’t take 6-12 months to learn, they may choose Option 4, particularly if they could access the assistance of an experienced investment adviser as a backup.

Most SMSF investors would much prefer to make all the investment decisions themselves, rather then pay the high fees and commissions to investment advisers, but just don’t know where to go to get the knowledge, or how to go about it. Until now, there just hasn’t been anything in the market place for SMSF investors to access or purchase to educate themselves on investing in the stock market that deals specifically with their circumstances.

This situation is not unlike the situation that confronts most investors; they have an interest in understanding the investments inside their portfolio and how they are performing, but they are not professional traders, or interested in becoming a professional trader. They are long term investors first and foremost, with a long term view of the market. They want to improve their knowledge of the market and the different securities that are available to invest in, but do not want to spend large amounts of time studying confusing information on a company’s fundamentals, or thousands of dollars on complex trading courses (that may confuse them even more).

SMSF investors want to be able to act quickly and trade inside their portfolios when necessary, such as when the state of the market changes or their individual circumstances change. A perfect example of this is where a person retires and goes from the accumulation phase of contributing to their superannuation, to the allocated pension phase of using up their retirement savings over time. This usually means a change in their risk profile from a growth or balanced investor to a more conservative investor. It also results in a re-weighting of the different asset classes inside their SMSF portfolio away from growth assets to income generating assets to help pay for their allocated pension.

The other types of changes occur as a result of what we are seeing today in stock markets and economies around the world – a financial crisis and global stock market crash. It is these types of events that prompt SMSF investors to rebalance their portfolio to suit conditions.

The argument for looking after your own investments

No one looks after your money better than you do. The sad thing about most trustees of the 400,000 plus SMSF’s out there is that they entrust the investment of their funds entirely to someone else. If you were to ask SMSF trustees why they have chosen to hand over the investment decision making process to an investment adviser, they usually answer that they don’t have the confidence to make investment decisions themselves, they don’t know how to invest in the stock market, or they don’t know when to invest or what to invest in.

These responses stem from a fear of the unknown, a preconceived notion that investing is just too complex for them to do themselves and that they don’t have the knowledge required to invest their funds intelligently. In other words, they don’t fully understand how the stock market works or the type of securities available to them for investment purposes. Most people therefore give up before they even get started.

Interestingly, for most SMSF trustees it’s not that they don’t have the time or intelligence to learn about these things, they just have no idea where to start. It’s all too hard and should be left to the so called experts. But, in reality it’s not that difficult to learn and understand. With the right information, packaged in the right format, most trustees can learn how to invest inside their SMSF with confidence.

So, what if there was a place that you could go to learn about investing in the stock market that was tailored specifically to meet the needs of people who own and operate SMSF’s. A website and educational course that allows trustees of a SMSF to effectively take back control of the investment decision making process inside their portfolio.

The solution

At SMSF Investor we have put together a course that does just that. Our SMSF Investor course on superannuation and stock market investing will enable you to get yourself to a point where you are confident enough to make intelligent and well informed investment decisions based on complete information. You will no longer have to rely entirely on a stockbroker, financial adviser or fund manager to make all your investment decisions for you. After all, it’s your money, and you should be able control how and where you invest that money.