CFS warns: non-advised SMSFs facing behavioural bias risk

SMSF trustees who invest without the assistance of a financial planner are at greater risk of behavioural biases that typically surface during the peak of a financial crisis, according to Colonial First State.

Speaking at an event in Sydney, Colonial First State head of investment sales Laird Abernethy said SMSF trustees who invest “without the discipline and supervision of a financial planner” are likely to fall into behavioural investment traps.

“Without a financial planner they are more likely to exit at the very worst time in a financial crisis,” said Mr Abernethy.

Sanlam Global Investment Solutions head of investments David Itzkovits said it is important to remember there is a “difference between investor and investment returns”.

“There’s a company, Deakin, in the US that actually quantified this – they did a quantitative analysis of investor behaviour," he explained. "What they did is they looked at the average mutual fund equity investor versus the S&P 500 over 20 years and what they found is that the average mutual fund equity investor underperformed the S&P 500 every year."

Mr Itzkovits said the underperformance was generally by a significant margin of more than 50 per cent.

“This is because investors make bad decisions, they get in and out at the wrong time,” he said.

Mr Abernethy said investing in managed funds that are exposed to equity indexes but use exchange-traded equity future contracts to reduce volatility may alleviate some of the sequencing risk concerns retirees or SMSF trustees looking to retire might have.

“This allows them to have exposure to equities in a more protected manner so they can get access to the equity risk premium on equity returns without the volatility and sequencing risk issues that they might have in a naked equity type product.”

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