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Checks and balances

From Money Magazine, April 2005

It's not much use running your own fund if you don't monitor its performance to make sure you're getting a reasonable return, writes Peter Freeman.

The big attraction of running your own self-managed superannuation fund is that it gives you maximum control over your super. But unless this control is exercised wisely, your fund could end up costing you money.

This risk was highlighted in the previous column (March MoneyM), which warned about leaving too much of your fund's assets in cash. Those who do this have often failed to look closely at the return their fund is generating and, most importantly of all, to compare this to what they might have received if they'd held their money in a public-offer fund run by an experienced financial institution.

This comparison can quickly show whether you're managing your fund's investments well or, as happens more often than not, underperforming compared to Australia's professional superannuation managers.

Anyone with a self-managed fund who wants to make this sort of comparison has access to a lot of helpful performance data, thanks to the Association of Superannuation Funds of Australia. This covers returns over the past 42 years — a period that addresses the need to look at your recent returns and the industry's long-term performance. Anthony Serhan, head of consulting at Morningstar and chair of ASFA's NSW investment group, says the association's study found super funds returned an average 10.9% a year over the 42-year period — well ahead of average inflation of 3.3% and the 4.9% rise in average weekly earnings.

One way to use the table below is to look at how your fund performed in these financial years and then compare this with the averages shown. You'll quickly see whether your investment strategy is at least matching the average annual performance of the funds surveyed by ASFA. If it isn't, there's little doubt the self-managed route is not serving you well.

You'll need to review how you manage your fund or think about winding it up and rolling your money over into a professionally managed alternative.

Super tip

I've been told I can get virtually all the benefits of a self-managed fund without the hassles if I use a discretionary superannuation master trust instead. Is this true?

Not really. While many discretionary master trusts allow you to choose from an extensive list of managed funds and shares, few permit you to own direct property. This is a problem for someone who wants to hold a business property in their super fund. If this isn't an issue, these trusts are worth considering, particularly as they are just as effective in delivering one of the major benefits of DIY funds — the ability to start getting a superannuation pension without having to sell assets and so incur capital gains tax.

For the complete story see Money Magazine's April 2005 issue. Subscribe now.