Is it relevant to compare against retail and industry funds?

Knowledge Test

Knowledge Topics

A comparison of your SMSF investment return against retail and industry funds will answer the question “Would I have achieved a different outcome if I had invested a different way?”  But it won’t answer the question “Given how I invested, did I get the return I was entitled to?”

SMSFs tend to invest very differently to large super funds. Unless you were also investing in infrastructure, hedge funds and a fair chunk in international shares and unlisted property, a comparison against a large super fund is not going to be comparing “apples with apples”.

It could still be useful though as it may lead you to question your current approach. Would you benefit from setting a target asset allocation? What should that target asset allocation be? Should you have more diversity within your Growth assets or within your Defensive assets?

But to answer the question “Did my fund perform as well as it could have?” it may be more useful to compare your performance against other SMSFs investing in a broadly similar way to you, or against a benchmark portfolio specifically designed based on how SMSFs are typically investing.

Because performance is a function of both risk and return, you need to compare against funds with a broadly similar mix of Growth assets / Defensive assets.

If you find that you are out-performing others investing in a similar way to you, then you have affirmation that all is well.

But if you find that you are consistently under-performing, then you have learned something valuable. You have an early warning that you may need to consider whether some action should be taken to keep on track.

What action could be taken?

If you found that your balance was falling behind others in your age group, you may be able to increase contributions, or reduce pension payments for a while.

If you found that you were taking on more risk than 80% of others in your phase (accumulation or pension) you may decide to increase diversity, or reduce debt.

If your returns were consistently lower than other “similar” funds, this may lead you to question which other ways are available to you to access the various asset classes.

No matter what you are investing in, there are different ways to do it.

Did you know that there are over 500 investment approaches available to you, and that’s before you even get down to what to actually invest in!

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