Tag Archives: investment returns

Why choose a SMSF as a saving option

Investing is regarded as complex and confusing right? That’s why you need a financial adviser to help you, isn’t it?

Man Shadow illustrating that costs cast a long shadow

That is true, but the costs of using a financial adviser or even a regular superannuation fund can often erode the investment returns and these costs are often hidden.

Self-managed superannuation fund

While it is probably better to be self-reliant, applying yourself properly to identifying and evaluating investments, takes time and is highly unlikely to result in above average results over the long run.

It’s also risky to not evaluate investments appropriately and act outside your circle of competence.

In Australia however, we have a unique situation that allows hundreds of thousand of small superannuation funds to be managed by their beneficiaries who act as trustees.

In Common Sense on Mutual Funds, John C. Bogle highlights that:

  • although we hear of the benefits of compounding returns we are seldom told about compounding costs or factor this into our long-term plans,
  • very few fund managers achieve market beating returns, especially over the long run, yet they are rewarded with a significant proportion of investment returns,
  • costs do matter and simplicity is the best way to avoid costs

I have realised that for those with the time, skills and discipline there is the opportunity to have more self direction and control over their retirement funds.  On the other hand, those that rely on outside help, will have to pay advisers which will bring them little benefit and cost them dearly in terms of returns on their investment.

The message is clear.  By setting up a SMSF you have the opportunity to eliminate costs by:

  • maintaining a simply structured SMSF, without ongoing professional advice.
  • investing while staying within your circle of competence, achieving appropriate diversification, maintaining high liquidity and staying focused for the long term.