Self Managed Superannuation Funds on the Rise

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You are no doubt aware that balanced superannuation funds showed their largest monthly loss in June since superannuation became compulsory in 1992. Balanced funds lost, on average, 6.39% in June.

The average being what it is, some did better, some did worse. The question now is whether a year’s worth of negative super returns will lead more people to explore the option of a self managed superannuation. There are already 378,000 self managed superannuation funds in Australia with 730,000 members, according to the Australian Tax Office.

To be honest, as an American, we know very little about Australian Superannuation. The whole idea of retirement is a Prussian concept courtesy of Bismarck that we don’t expect to survive the next thirty years. Nonetheless, we’ve been studying up, asking around, and shaking the trees, though.

At a basic level, Aussies are beginning to ask a simple question: can I manage my money better than a fund manager who charges a fee of 1.5% to 3% regardless of how my fund does? When markets go up, no one complains about performance. You hardly notice the fee when the share market itself is growing at double digits.

Also, the Super industry-which would very much like you to stay in actively managed funds-says that Super averages a negative return once every seven years. The sample size of this performance data is statistically very small, since Super’s only been up and running since 1992. In other words, there’s no real proof that investing for the long-term in shares is the way to secure your retirement.

So who is the best person so manage your super? Well, a doctor can help your manage your health. A mechanic can help you manage your car. And maybe a priest (shaman/rabbi/ imam/ psychologist, bar tender) can help you manage your soul. But when it comes to your own money, we reckon no one is going to care about it as much as you.

By the way, if you have thoughts or ideas on self-managed super, drop us a line at dr@dailyreckoning.com.au You’ll be hearing more from us on it in the future.

Is it really possible the RBA will signal its intention to lower rates in September when it meets tomorrow? Well sure. Anything is possible. Look at Keanu Reeves’ career. A string of lay-off announcements in the labour market and the weakest retail sales figure in six years may give the Bank evidence that consumer demand has slowed.

But so what? Has inflation slowed? Are prices rising less fast? Is money supply growing less fast? Those are the real important questions. Australia, like America, is now on stagflation alert. You can have slowing growth in the real economy (even recession) AND rising prices.

If you accept the premise that it was excess consumer demand driving inflation, then sure, lowering rates once consumer demand is logically consistent (if economically irrelevant). But if you accept the premise that inflation in Australia has its origins in money supply (not consumer demand), then the Reserve Bank will not pay attention to demand…but to its own open market operations.

In any case, it’s far from certain that the RBA will cut in September. A lot can happen in a month. It will be interesting to read the notes from the meeting to see what the Bank has to say for itself. If it looks like a rate cut is on the way, the share market will like it. Don’t expect bank credit to get much cheaper though.

It’s just four days to go until the Olympics begin. Was it just your editor, or did the travelling outfits of Aussie athletes look like prison jumpsuits, with those black and white stripes? Also worth watching…how China shows itself off to the world, and whether anyone wants to spoil the party.

It’s appropriate that the games are in China right now. The government their wants to use the games to show off China’s emergence on the world stage, something the Chinese people can be justly proud of. However the government itself is going to have a tough time showing off China while keeping protests out of the public and out of the headlines. Look here! Don’t look!

In terms of symbols though, it looks to us like Adam Smith’s invisible hand of market forces is giving way to the visible fist of State power in economic life. Globalisation has dispensed all of its advantages (lower prices in the developed world for manufactured goods, higher wages in the developing world.) Now come the disadvantages.

There’s a backlash growing. People all over the world aren’t so sure they want their uncompetitive industries exposed to foreign competition. After all, look what it did to General Motors in the U.S. Couple that with the bear market in credit-really the end of Age of Financialisation-and you have a growing sense of hostility toward trade and free markets.

This should make for some excellent buying opportunities in the share market over the next six months.

Speaking of economic and psychological cycles, we had a look at the Art Deco exhibit at the National Gallery of Victoria this weekend. What a great show. It was combination of industrial design, architecture, fashion, and advertising from the period between the World Wars.

Not that we know much about art, but we liked the clean lines, symmetry, and neo classical references in a lot of the Art Deco work. But as the name itself suggests, it was a period that focused on decoration more than function. But it certainly is aesthetically pleasing compared to a lot of the garbage you see in architecture and advertising today.

You also get a sense of optimism from looking at the buildings and advertisements. It was an exciting age, where new technologies like the radio, electricity, commercial aviation, massive ocean liners, and impressive sky scrapers captured the public imagination.

It’s also worth noting how commodities-intensive this kind of styling was. It used aluminium, stainless steel, glass and other metals. If there’s ever a nouveau Art Deco phase, it should be good for base metals prices.

Dan Denning
The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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16 Comments on "Self Managed Superannuation Funds on the Rise"

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Coffee Addict
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If you are an informed investor, and if you have super choice (I don’t) SMSF is in my view the best option. By now we can probably add another 2% loss to the average balanced fund l and I would assume (optimistically) there are another 5% to 10% of losses to go. All things considered, a 13% to 18% loss on super before the year is out probably isn’t that bad. Some funds will do a lot lot worse and THAT’s where the probems will lie. The wiser members of this forum who ticked the “cash option” box several months… Read more »
christina
Guest

Would it be good to just switch our whole super fund into gold? What if we do that? Would that work?

Fred
Guest
Nice Idea Christina – first go tell your ignorant, lazy, self serving and incompetant (assuming they are all the same) super fund “managers” that they have serious risk management holes in their so called “choice” offerings by not offering gold related funds, nor a range of currency options and other stuff. If you have some investments in a retail super fund, I’ll bet that most of your choices are pretty much the same – and all lousy. (They keep the good choices for themselves.) One more thing, doesn’t the oft-repeated mantra “it’s best to keep your money in the same… Read more »
tomintaz
Guest
You know what; Christina.. That very move, right NOW as gold is around $870 might just be the best approach for your precious savings. I’d consider the LOT immediately !! You can rest assured that; * Peak Oil alone will inflate the economy so fast & so much that.. now project yourself forward 2 yrs. & this is the likely scenario: a) $200 -$300 per barrel/oil : gold around $1500.00 oz b) $300 -$400 per barrel/oil : gold around $2500.00 oz Looking back on your investment (which you are currently considering) of lets say $50k, the probable result(s) in just… Read more »
christina
Guest

Thanks everyone for your great comments and advice :-)

tomintaz
Guest

to follow up on read this kitco GOLD forum thread: Do you really know what your doing !

https://www.kitcomm.com/showthread.php?t=20676

Ross
Guest

But Dan the German thing was called Rentenversicherung. It was paid as a monthly pseudo salary upon retirement, and if you died so too did your principal (your wife & kids couldn’t make a call on the principal and only got a reduced monthly payment).

And the cultural thing was that hard working German men tended to die within a few years of retirement. The German state supped on it! Social engineering rules always suck.

Dan
Guest

Buying gold at this point might be a good thing to do. The long-term trend still appears to be upwards. Trend following is more or less how hedge-funds make money and it can work for individuals too.

But here’s the question that needs answering before you commit your hard-earned dough: what are your criteria for exiting the trade? Or would the plan be to hope that the trend lasts until you happen to need the money?

Same question American property investors did not concern themselves with. Seems they would be regretting that now.

rick e
Guest

Horses for courses
Look end of the day gold for some

When and if things go bad and you want to prepare, you can always buy a farm or working property (out at bowral NSW you can get 5 Acre block) set up solar, wind mill, and feed it in the electricity grid. Grow your own food make a dam, buy a caravan.

If the worst is not that bad makes a good holiday house.

I wonder if a DIY super can be used to fund it!

christina
Guest

Actually, I guess I don’t know enough about how to do it. Thanks again to you all for for excellent points. Gosh, we all read all this money stuff and we’re still confused. No wonder the poor massses who dont read anything about finances, and who watch tv every night are so super confused. I think I’ll just go and have a cup of tea :-)

Ross
Guest
Cheers Christina! With many Australian internet bank accounts returning over 8% with no fixed term and small minimum deposits you can at least defend a good chunk of money short term. Only 20K of deposits is govt protected so you might spread some around a few banks after looking at their star ratings. If inflation really takes off you could then move money quickly if you needed to. The people that have taken margin loans now need to be finding +10% returns just to break even in equities & commodities in a risky market …. many will be selling or… Read more »
christina
Guest

Thanks heaps for that advice, I appreciate it a lot :-)

Lucy
Guest
I’m jumping in on here.. just seeking some words of advice. I bought a mutual fund that is heavily leaned into gold and precious metal producers with some commodities. Lately, the price of the fund had already slipped by at least 20%. I am highly stressed, especially when experts are calling the end of the mining boom just today. I’ll make a big loss if I sell but I don’t know holding on is a reasonable action to take, considering that if this is the big fall, it’ll take at 15-20 years for the next cycle to come around. Anyone… Read more »
Coffee Addict
Guest
Lucy. First of all try not to panic. If the very long term trend for oil is upwards then the price of gold is very likely follow (noting there are no certainties with this historic correlation). In the short to medium term expect more volatility. Most advisors try to align the investment advice to a customer’s risk appetite, investment knowledge and stated preferences. If you have a low appetite for risk (and it appears you do),putting all of your eggs in a single commodity basket may not have been a good move. Now you are there YOU need to decide… Read more »
simi
Guest

My self managed fund has lost 20% over the last 12 months. It is being managed by a company in Melbourne. I would like to know how this compares with other SMSFs generally. Can anyone help pl

christina
Guest
Isnt it ironic how a self managed fund is being managed by someone else. Its not really self managed then I guess. Its someone else managed. Robert Kiyosaki (from the book Rich Dad, Poor Dad) said never to hand your money over to someone else to invest, as they will never care about it as much as you will. Of course they will care about getting their own share. You can bet your life your fund manager will take a dip into your savings and get paid his share, whether your balance goes up or down. You know that old… Read more »
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