The problem is that there are limitations with each of these benchmarks when it comes to SMSFs.
Terry invests 100% of his SMSF in Australian shares. The problem with benchmarking against the publically available S&P ASX200 index is that this is a “price index” only. If he compared his investment return against this index it is going to be artificially flattering for him, as he will also have earned dividends. This could cause him to come to an incorrect conclusion about how his current investment approach is going.
Further, SMSFs tend to have different sector weightings than the ASX200, so this index may not be the best to use. Also, the average SMSF has some indirect exposure to International shares, via trusts and funds, so It may be more appropriate to compare against a “benchmark portfolio” of how SMSFs are typically investing, according to ATO Statistical Reports, or against other SMSFs investing in a similar way.
Michelle invests with a diversified portfolio where she set a target asset allocation of 60% Growth assets / 40% Defensive for the first 2 years and 6 months, before changing her target asset allocation to 80% Growth / 20% Defensive for the next 6 months.
She receives a Performance report comparing her 3 year return to a Multi-sector model portfolio.
There are 2 problems: