SMSFs with more members shun riskier investments

The more members there are in a self-managed superannuation fund (SMSF) the more they tend to shun riskier equity markets and invest more heavily in cash, according to a report.

The ‘Gender and group bias in SMSF allocation’ report by SuperConcepts and the University of Adelaide’s International Centre for Financial Services found that more male members tended to invest in more risky assets, but there were more allocations to cash and conservative investments the larger an SMSF was in terms of members.

SuperConcepts general manager of technical services and education, Peter Burgess, said: “This research is important as awareness leads to action. If trustees are aware of their biases they can try to overcome them”.

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“This will go a long way towards making sure any investment decisions they make are in their best interests and will meet retirement and other long-term financial goals,” he said.

The report found between 2008 and 2015, cash holdings experienced a decline in weight since 2008 – from 23 per cent in July 2008 to 15 per cent in July 2015. Allocation to property and domestic shares had been relatively stable.

“Taken together, these results suggest that gender and group behaviour bias work in opposite directions. Lower investments in cash attributed to gender bias get cancelled by group behaviour bias, with the net effect resulting in a reduction in cash holdings over time,” Burgess said.

“SMSFs with more members tend to be families and this adds a different dimension. Trustees may be concerned with protecting family wealth and there is often a need to adopt a more conservative approach with decisions when there are multiple people with different priorities involved.”

University of Adelaide professor, Ralf-Yves Zurbrugg, noted that group behaviour could either exacerbate or counteract the effects of behavioural biases and that in the context of investing, group behaviour seemed to encourage less risk positions.

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