End to self-managed super boom predicted

By Ross Kelly

THE boom in self-managed superannuation funds (SMSFs) could soon end if experiences in the United States are repeated in Australia.

This is the view of Russell Investment Group head of members services, Heather Dawson, who worked for years with pension plans in the US and told the recent Tribeca Super Choice Forum that do-it-yourself (DIY) investment strategies, once popular in the US, are losing their credibility.

According to Dawson, the bull market of 1995 to 1999 generated a legion of over confident ‘DIYers’. It also generated too much investment choice as product providers tried to cash in on investor hubris.

But thanks to lack of experience and knowledge of investment markets, a reliance on emotions and poorly timed market moves, investors ended up getting burned.

“During the greatest bull market in history, the average rate stock investors earned underperformed Treasury bonds,” Dawson said.

She quoted a recent analysis of US investor behaviour by research firm Dalbar, showing the average stock fund investor achieved a 3.51 per cent return for the period 1984 to 2003 — versus the S&P 500 return of 12.98 per cent for the same period.

Dawson said the US was now moving into a “do it for me” era, where investors admit they don’t know much about investing and need a financial planner to guide them through a confusing suite of investment choices.

“Experience shows that, if the options get overwhelming, members effectively stop playing the game.... because they feel they have no capacity to distinguish among countless choices.”