The growth in the self-managed super fund (SMSF) sector over the past 20 years has been phenomenal. As of 2015 there are 1 million SMSF members who control $550 billion in assets. This represents 50x growth since 1994 when there was only $11 billion in total SMSF assets.
For both young and old Australians, the appeal of having their retirement fate in their own hands is undeniable.
As a group, SMSFs consistently rate the most satisfied superannuation members, citing flexibility, control and the ability to avoid larger funds’ performance problems as key benefits of having a SMSF. In addition, most studies have estimated that SMSFs as a group have enjoyed similar if not better performance when compared to institutional funds.
One factor that is more difficult to assess across the SMSF sector is risk. When you compare SMSFs with retail or industry-fund portfolios, they have significantly higher allocations to Australian shares, property and cash with relatively little in fixed interest and global shares.
Source: Multiport, APRA Annual Superannuation Bulletin 2014.
This means that compared to a typical balanced or growth fund, SMSFs have a very different risk profile. Up until recently this asset mix has actually helped SMSFs. Their high weighting to Australian shares was a blessing during the Australian equity boom of 2003-2007 and from the financial crisis onwards, their high allocation to cash helped to cushion market falls.
However, many SMSFs now face a period of higher risk and potentially poor performance if they don’t address some key risks within their portfolios.
Here are 3 risks that we think SMSFs should consider.
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