Many a silly misstep can send spasms through your SMSF

Moving on from last week's column, the next step in your SMSF plan is simple, it's this: don't do anything stupid.

Moving on from last week's column, the next step in your SMSF plan is simple, it's this: don't do anything stupid.

For people who find themselves in charge of a lot of money for the first time in their life it's easy to do something stupid. Here are some of the most common slip-ups.

Doing something unknowingly illegal

Like spending your super. Obvious stuff, but until you've actually been through the audit process you may not realise that there's no leeway on the rules. There's no parking the money in your mortgage account for the year and pretending it stayed in the SMSF. There's no paying bills with your SMSF and then paying it back later. Do yourself and your accountant a favour, ring-fence your SMSF. It's not there for any other purpose and the paper trail will be audited. I really don't have to tell you this surely, but just in case you thought all your cash flow problems were over: they won't let you run an SMSF if you muck around.

Falling for a scam

I have a mate who sent $50,000 to the Philippines. I know another who bought into a gold bullion scheme that immediately appeared to make money. But in order to keep the position open so it could be sold, he had to pay another instalment. In both cases there was no investment, just a stranger on the telephone, a bogus website and a 100 per cent loss. When the margins are 100 per cent of the money you send them, they can be very persistent. The way they targeted Australians in the past was to pick on company names with a surname in the title, like Harvey Norman or Robert Fleming. They'd ring up and ask for Mr Norman or "Bob". Basically, if a high-powered Yank has to call Wayne in Wagga Wagga to tell you about his fail-safe gold bullion trading scheme, it's a scam. You're simply not that important.

Think short term

Tell me I'm wrong but in my experience there is no long-term progress in being short term. I have seen it 100 ways. In the wake of the Big Bang in London in 1986 I used to sit next to a guy nicknamed "Smash". Smash was a hooligan, more at home lobbing darts into the opposition supporters at a Millwall game than attending the annual UBS Phillips & Drew corporate fly fishing day on the Test. He was a real character and one of the many stock jobbers that adapted to "life upstairs" when the stock exchange floor disappeared.

When your cultural background is making cash on a market stall in Brick Lane, market making at UBS Phillips & Drew with a live P&L was Brick Lane on steroids and he loved it.

He became an expert short-term trader, in and out, in and out all day long, the master of stampedes, the exploiter of lemmings and a devilish manipulator of both fear and overconfidence. Wherever the action was, he was there. He would watch small stocks intensely, sometimes for long periods (two hours). He could dominate a day's trade, create breaks, start collapses. He was always one microsecond ahead of the herd. We were in awe.

Eighteen years later I went back to London. Smash was still working a desk, had a facial tic, been bankrupt, looked 40 years older, still carried a wedge of cash instead of a credit card and had yet to find the time to "settle down" with a girl. A product of the Big Bang, a product of being short term in the long term.

Thanks to technology our financial time frame is only going to get shorter and shorter. It's progress, but like the Big Bang, it's not going to help.

Take it from me that your SMSF is not going to progress in the long term if your focus is on the short term. Maybe you should consider that the next time you are wowed by financial product marketing that suggests you can trade forex between packing four kids off to school and picking them up again. If you read books like Market Wizards that give accounts of professional traders, you will find that they all start out trading by the second, the minute, the hour but after years of experience all traders work out that the only time frames that reliably pay off are over weeks, months and years. Plan to succeed in the end. Not tomorrow.

More stupidity next week.