ONE of the ironies of the investment business is that while the wealthy pay plenty for help managing their millions, the less-well-off too often try to do it all themselves.
The onset of no-advice brokerage rates and self-managed superannuation has created an avalanche of part-time, do-it-yourself experts who think they are all smarter than the market.
About $10 billion a year is being invested in self-managed super funds (SMSFs) as investors switch from retail and industry funds, often on the advice of accountants promising greater flexibility and improved returns.
As a result, it is estimated more than $400 billion of assets now reside in Australia's SMSFs about 31 per cent of total superannuation assets. Of that $400 billion, about $115 billion resides in unproductive cash deposits, and the cash pile is building. We are hoarding cash just when the returns on that cash are near record lows. Discretionary flows into investment products are going backwards, yet investment markets have still bounced 14 per cent in the past eight months. In the December quarter there was a net $1.6 billion outflow from retail investment products, excluding cash management trusts.
Anecdotally, signs aren't good for maximising wealth over the long term.
The big industry funds lament that it takes just one scary newspaper headline to trigger a rush of redemptions from equity funds. History shows such reactionary moves nearly always cost members dough. It's not so much that getting out of equities is the problem, it is that people forget to get back in.
Fund trustees used to applaud when members moved out of default settings now they worry about the long-term impact on retail superannuation balances.
Then there are the professionals. I know of one Sydney-based fund manager who has been banned by his wife from reading company reports in bed.
Australia has more than 150 equity management firms and thousands of investment advisers all competing for your business. The good news is that in a post-GFC world, getting access to these people has never been cheaper, competition for the best performance has never been more intense.
Common sense would suggest the best investors are the ones that do it for a living. They are paid not to get distracted by life's little dramas.
They should be risk-averse, be disciplined and know the sectors in which they invest intimately well. They are battle-hardened by the GFC.
They have good access to the management of companies in which they invest and seek out the opinions of the best business brains to construct portfolios. They seek perspectives from people such as Professor Geoffrey Blainey, who speaks of the similarities and differences of the current climate with the Great Depression of his youth.
They seek perspectives on Asia from people such as Mike Pratt, one of the country's most senior bankers, who has first-hand experience of managing a loan book in Asia.
This is not to say you shouldn't take charge of your investments. It's a necessity. Handing over all responsibility to a financial planner, fund manager or broker offering risk-free riches is a folly.
But it is important to acknowledge that to be proactive about one's savings shouldn't mean we do it all ourselves. Engage the market. At the very least, seek a second opinion.
It's all about managing risk in pursuit of reward over the long-term versus a Reserve Bank cash rate at 3.75 per cent.
Stewart Oldfield is an analyst at Investorfirst Securities. soldfield@investorfirst.com.au
Frequently Asked Questions about this Article…
What is driving the rise of DIY investing and self-managed super funds (SMSFs) in Australia?
The article notes widespread growth in DIY investing driven by no-advice brokerage rates and the appeal of SMSFs. About $10 billion a year is being invested into SMSFs as people move from retail and industry funds, and roughly $400 billion (around 31% of total superannuation assets) now sits in SMSFs.
Why is holding large cash balances inside SMSFs a concern for everyday investors?
According to the article, about $115 billion of SMSF assets are stuck in unproductive cash deposits. That's worrying because cash returns are near record lows, so hoarding cash can reduce long-term returns just when markets have rebounded strongly.
Are DIY investors good at timing the market, or can reactionary moves hurt long-term savings?
The piece warns that reactionary moves—like rushing out of equities after scary headlines—often cost investors money. Markets can bounce quickly (the article cites a 14% bounce over eight months), and people who sell and then forget to get back in risk missing recoveries.
How accessible and affordable is professional investment advice and fund management today?
The article says access to professionals is cheaper than after the global financial crisis, with more than 150 equity management firms and thousands of advisers competing for business. That competition has helped make professional expertise more affordable for everyday investors.
What advantages do professional fund managers offer compared with DIY investing?
Fund managers are paid to stay focused and avoid distractions, are typically disciplined and risk-aware, and have deep sector knowledge. They also have better access to company management and expert perspectives—qualities the article highlights as valuable for constructing long-term portfolios.
Should I hand over all my investment decisions to a financial planner or fund manager?
The article cautions against handing over all responsibility to a planner or manager promising risk-free riches—calling that a folly. It recommends staying engaged with your savings while using professionals as a resource, and at minimum seeking a second opinion.
What do recent retail investment flows tell everyday investors about market sentiment?
The article reports a net $1.6 billion outflow from retail investment products (excluding cash management trusts) in the December quarter, reflecting a pullback from discretionary investment products even as markets have risen. That suggests investor sentiment can lag market performance.
How should investors think about managing risk versus chasing returns in the current environment?
The article frames it as balancing long-term pursuit of reward against a Reserve Bank cash rate of 3.75%. Practical steps it suggests include engaging with the market, seeking expert perspectives or a second opinion, and focusing on disciplined risk management rather than short-term reactions.
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