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Poor performance: why you shouldn’t set up an SMSF

why you shouldn't set up an smsf self-managed super fund superannuation rettail fund performance return

Every month around 2800 self-managed super funds are set up.

But before you opt out of an APRA-regulated fund and set up your own fund, consider the performance of the average SMSF.

While APRA-regulated funds returned an average of 7.4%pa over five years to 2015-16 and industry super funds earned 8.8%, SMSFs with assets of $500,000 to $1 million really lagged with an average 3.7%.

Ouch!

And if you have less money in your SMSF to begin with, you can expect to do a lot worse. According to performance figures released by the tax office and analysed by Industry Super Australia, negative returns were widespread among smaller funds.

SMSFs with assets less than $50,000 lost members on average 16.7% in the 2016 financial year. SMSFs with $100,000 to $200,000 lost 3.3% while those with $200,000 to $500,000 had a zero return.

The table below, for results over three, five and eight years, shows the poor performance.

SMSF members with assets less than $2 million are on average worse off compared with members of an APRA-regulated fund.

Why do small SMSFs with lower balances do so badly? They face a higher average total expense ratio. Administration and compliance costs are steep, eating into returns.

But the other big problem with SMSFs is the trustees’ choice of investments. There is little diversity. Some 60% of SMSFs with balances under $100,000 have 80% or more invested in a single asset class. Asset classes are more likely to be cash and term deposits, domestic listed shares and non-residential real property. But SMSFs with more than $1 million are more diversified.

SMSFs with assets over $2 million on average generally performed on par with APRA-regulated funds.

Stephen Anthony, chief economist at Industry Super, says the data suggests SMSFs work for sophisticated, high-wealth individuals but cast doubts over their suitability for ordinary Australians.

“Medium to smaller ones showed appalling returns,” he says. “The pattern is clear: the less you have, the worse you perform.”

The latest ATO annual SMSF statistical overview has again raised questions about whether such a retirement savings arrangement is good for its members given the significant problem of historical underperformance, especially compared with industry funds, says Anthony.

It is alarming given that there are about 597,000 SMSFs with combined assets over $696.7 billion, representing 30% of the total superannuation sector.

Written by Susan Hely

Susan Hely

Susan has been a finance journalist for 30 years. She wrote for the Australian Financial Review and the Sydney Morning Herald, edited ASFA's Superfunds magazine and wrote the best-selling Women and Money.

202 posts

6 Comments

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    • Hi Aden,

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  1. This is false and misleading reporting by Industry Super Australia who are comparing the returns of APRA funds excluding members insurance premiums vs SMSF returns after members insurance premiums. AND Industry Super Australia know it

  2. This is certainly misleading and self serving by Industry Super. They are always having cheap shots at SMSF to try to stop people removing money from APRA funds. As for performance, the numbers are clearly selective.
    By way of comparison to the table above, our own SMSF (<$2m by the way) has averaged after fee, after tax growth of 11.46% (3 yrs), 16.90% (5 yrs) and 13.83% (8yrs). These numbers smash the Industry Fund averages over the same timeframes – SMSF for me any day.

  3. Setup a SMSF and bought a house 3 1/2 yrs ago. 54.9% return. Selling now and will close fund by rolling back into a Industry Super. Homework done A+

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