Behavioural bias impacts SMSF returns

There are various biases and behavioural factors that can potentially impact returns for self-managed superannuation funds (SMSFs) but seeking professional advice and education is a way to overcome these biases, according to SuperConcepts.

A study titled ‘Behavioural factors in SMSF asset allocation’ found SMSFs with more male than female trustees tended to invest more in riskier assets such as domestic shares and property and less in lower risk assets like cash, according to research by SuperConcepts.

The SMSF administrator, along with the University of Adelaide, investigated the behavioural factors that contributed to asset allocation decisions of SMSFs, and also found SMSFs tended to invest more in safe investments when the number of trustees rose.

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SuperConcepts general manager, technical services and education, Peter Burgess said SMSF trustees should consider the findings of the research when making decisions about how to allocate their fund’s assets.

“It’s important to be aware of behavioural factors because they have the potential to impact returns. The research showed that gender bias leads SMSFs to invest in risky assets when they are comprised of more male trustees,” Burgess said.

“This is consistent with other academic studies, which have shown males tend to have unsupported confidence in their cognitive abilities and this overconfidence becomes more pronounced when it comes to investment-related tasks.”

The study, based on longitudinal data on 20,121 SMSFs between 2008 and 2015, also found as the number of trustees in an SMSF increased, the investment decisions the fund made became more conservative.

“Studies have shown that individuals behave differently when they make decisions in a group because individuals desire social acceptance,” Burgess said.

Funds with an average trustee age of less than 50 years allocated more to domestic shares and property, which supported the view that funds with younger investors were less risk averse and engaged in more risky investments. However, in contrast, funds with younger trustees also invested more in cash.

The research showed the age of SMSF trustees explained some aversion to risky asset classes but it did not explain all investment attitudes.

“Together, the research results suggest gender and group behaviour bias are opposing forces,” the research said.

Smaller cash investments in an SMSF that could be ascribed to gender bias were cancelled out by group behaviour bias, with a net of reduction in cash holdings over time.

SMSFs included in the survey had an average balance of $845,000, while on average the SMSFs had two trustees, with an average age of 61 as at July 2015. More than half (55 per cent) of trustees were male.

 




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