How to Time the Market Without an SMSF

I was listening to an old broker on the Business News the other day saying that his wife and he were just hoping for one more share market boom before they retired. It takes an experienced financial markets operator to make the observation that making money in the share market is not about buying and holding stocks for a long time, it’s about exploiting the booms and busts, luck, and sometimes avoiding the market altogether.

Investors are now much smarter than they used to be, and more demanding, and to find a client that will accept the line that investment is about buying a diversified portfolio in the long term and targeting average returns is like finding financial planning gold. Clients with blind faith in the brainwashing funds management mantra of “time in the market, not timing the market” are now, thankfully, few and far between.

Individual investors have come a long way since the Intelligent Investor was written in 1949. They know more, have more tools and in many cases more skills and more engagement with individual stocks than some of the advisers that purport to advise them. They are no longer prepared to accept “outperformance” as the goal; they want to make money and, more importantly, not lose money when the market falls over, and every time the stock market corrects, their numbers grow. With so much stock market visibility and functionality, individual investors want to take action when things go wrong, and the bulk of the managed fund products on sale don’t do that. Yes, they might run their cash up from 5% to 20%, probably after the fact, but the individual investor, bruised by the GFC, wants, and now can, do better.

These days, the technology is there for any investor to fully engage with their investment outcome. Good fundamental information is a commodity, education is everywhere, the Dark Art of charting has been broken down by some excellent software packages, aided by AI, that allow anyone to quickly get a feel for trend and timing, and there are now some great independent newsletters (like Marcus Today) full of ideas, information and education to keep you company every day.

Then there are the online broking platforms (make sure they give you a HIN) that provide cheap and efficient execution, as well as offering bells and whistles like contingent orders that allow you to set and manage things like stop losses and stop gains. With access to such good online investment tools and execution, there is no longer a need to accept the mediocrity of a diversified managed fund unless you want to. The age of the empowered individual investor is here. If you want it.

But of course, many people don’t want it, they don’t want to get involved. Investment couldn’t be more alien to them. We can all cut wood and hammer nails, but we wouldn’t build our own house. We can all find a knife, but we would never perform surgery on ourselves. We all have a pair of pliers, but we wouldn’t do our own dentistry. And just because we have the investment tools, it doesn’t mean we should attempt to become our own fund manager. I would never let you manage my investments, so why would you think you can manage your own?

The numbers don’t lie, despite there being more superannuation accounts in Australia than there are adults, despite the $3.9 trillion in those accounts, most Australians choose not to engage with the stock market. Only 4.4% of Australians have an SMSF, and all you need to do is ask anyone who’s got one to understand why. The administration, cost and hassle of an SMSF is a pain, and when you have been a football coach, a builder, or a doctor all your life, the last thing you would choose to do is take on the role of fund manager. It is a responsibility, and the responsibility for your partner’s financial future can be very divisive for your relationship.

But wait. There is some good news. You don’t need an SMSF. The large superannuation and industry funds that most Australians are using and are corralled into courtesy of their employer’s default fund, are now allowing their non-SMSF members to make choices as well.

The unspoken truth is that the big industry and superannuation funds are now too large to be active and, as a consequence, almost all of them produce the same average return. It is almost criminal if they don’t. In which case, the only way they can differentiate themselves, as they do, is to advertise either low fees (and compound the difference in their advertisements), or, secondly, and they should advertise this harder, offer the best administration and investor functionality through their websites and online Apps.

It is not a bad thing, but the big Australian industry and superannuation funds are now simply administration sites that, almost laughably, now leave the investment decisions up to their clients, to you, by allowing you to choose and change your own asset allocation almost daily. If you have ever bothered to find your login and have a look, you will see that you can now choose between multiple pre-ordained mixes of asset classes described most commonly as Growth, High Growth, Balanced, Default, Conservative, Aggressive, Moderate, Capital Stable, and Defensive. Click the button, and your percentages in Cash, Fixed Interest, Australian Shares, International Shares, Property, and Alternatives will automatically adjust to match the description of the risk appetite that you chose.

The result is that thanks to the millions of dollars spent by these huge funds on these administrative websites, you don’t need the structure of a self-managed super fund to manage your own super. You can now ‘take control’ without an SMSF, without the paperwork and with some funds, you can not only make asset allocation decisions, but can drill down and select individual stocks, exchange traded funds, and even, perversely, managed investments.

There are lots of things you can’t do without an SMSF, just ask your financial planner, but for those who are not interested in bespoke financial engineering, and who don’t want the expense, administration and complication of a self-managed super fund, you can start self-managing your super through the back end of a big wealth management firm’s website, outside of a Self-Managed Super Fund structure.

The even better news (for me) is that you’ll still need the Marcus Today newsletter to tell you when to click “Cash” and when to click “Aggressive”.

If you haven’t, have a look at your big super fund’s website and find out what you can now do from the comfort of your mobile phone. If you can find your login. And if you can’t, shame on you.

Letter From a Member

I employ this very approach, my super is with Mercer and I use their Direct Investment Option (DIO) in order to gain access to ETFs and shares. You can have 80% of your balance in DIO, and the rest needs to be invested in their own funds.

Their ETF offering is ok (NDQ, IVV, FANG, etc.) but I’m wondering whether any of your team has done any analysis on which of the big super funds has the largest offering of ETFs from an investor access perspective?

With the MT strategy portfolio in cash now, it would be an opportune time to switch if there were a better fund to shift to in order to gain access to more ETFs.

Feedback: when you do make changes to the strategy portfolio, it’s really helpful (and thank you) when you provide a few options in terms of the ETFs to invest in, as this allows investors like me to continue to be aligned/mostly aligned from an asset allocation perspective.

Continue to thoroughly enjoy the MT service.

REPLY

Thanks for the feedback – yes, will try and provide alternative (same theme) ETFs when doing things. No, I haven’t done the work on which Super Funds provide what investment options as regards ETFs. It’s a big bit of work to compare them all, I’ll have to leave that to someone else I’m afraid.