A combination of behavioural biases and the proliferation of news and technology could be hindering SMSF trustees, says AMP Capital chief economist Dr Shane Oliver.
Speaking at the SMSF Association conference last week, Dr Oliver said while improved information should result in more efficient markets, it also means more immediate effects on markets.
“Information is quickly impounded into share markets so you don’t have the long lags you once had in the past when bad news hit the markets,” said Dr Oliver.
Unfortunately in some instances, he said, this means there is an overreaction in markets when bad news occurs.
“You’ve got a situation where you’ve got more irrational markets,” said Dr Oliver.
“[This] information overload combined with behavioural biases, is leading to a situation which is not that great for investors, so we’ve already got [a] problem here.”
SMSF practitioners, he said, therefore need to educate their clients that “even if you have information, it may not necessarily help you – it may just confuse you”.
The average SMSF trustee, he said, should instead look to adopt a long-term strategy, rather than regularly “chopping and changing” their investments which will “probably end up destroying value for them”.
“Investors need to realise that markets climb a wall of worry; that’s the way they work, if there’s nothing to worry about then maybe that’s a worry in itself,” he said.
“Normally markets go up against a wall of worry – we’ve seen that in the past few years.”
Dr Oliver said it is critical for SMSF trustees to “turn down the noise”.
It is important, he said, investors don’t spend all their time monitoring investment information channels.
“You’ll end up very confused about things – a lot of it is literally a soap opera.”
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