Take Control: Self-Managing Your Super

Managing Your Super | Part 3

So you're thinking of doing it yourself?

Here are the three options:

1. Don't do it at all - leave it with an industry or retail super fund.

We've covered options 1 and 2.

Let’s Discuss Option 3

If you've decided to take control of your superannuation, the last option is to do it yourself. In other words, not leaving it up to an industry or retail super fund, and not involving a financial planner, platform or managed funds, all of which can chew up 3-5% in fees per annum. Compound those fees, and it'll cost you 34% to 64% of your capital over ten years.

Looking after your own investments is quite an onerous decision. Because essentially, if you're transitioning from being a footy coach, a builder, or a fighter pilot to handling investment (just because you've reached that 'time of life' and don't trust anyone else to do it), then you're essentially putting your money in the hands of a complete amateur. You should be careful before doing that.

Managing your own super is not something that everyone can do. To do it properly, without blowing yourself up, requires you to go through every investment lesson that everybody who successfully manages their investments goes through. There are a lot of things that can go wrong (and right) looking after your own money. Do you know what they are? It involves quite an investment of time, and if you mess it up, quite an investment of capital. So just be careful before you set out on your own to look after your super.

On top of learning the skills, if you are going to commit, you need to enjoy it. It needs to be a hobby. It needs to be a passion. It's a fantastic thing to do. The last thing we need in life is to be left with nothing to wake up to in the morning. In the stock market, you wake up to change every single day. You wake up to a real purpose. Looking after your investments is interesting and intellectual; anything can happen any day, and that keeps us all alert and alive.

Another factor that keeps many investors involved is that the stock market can be quite social. There are all sorts of investing groups and bodies you can join with a common purpose. It allows you to travel. It's like golf without having to play golf – one of the most fantastic excuses to get up in the morning.

It's a great thing to do, but, as I say, it does take a while to learn how to do it comfortably, and, as any experienced investor will tell you, what you should not do is invest because you feel it's something you have to do out of necessity. Or because you're upset about having to pay professional fees, or you're angry about something in the past. These are the wrong motivations for looking after your own investments. The only motivation for looking after your own investments should be that you're going to enjoy it and be passionate about it, and for those of you with idle lives or brains, it's going to keep you mentally alert. And it doesn't require physical fitness, it is one of the few things that you can do for the rest of your life.

If I haven't put you off yet, there are a few more things you need to know.

Having decided to do it yourself, accept that there's a learning curve to go up. You need to develop a little bit of humility. Everyone else has been there before. Once the lights start coming on, you'll realise how many lights are off, and there's a road to be travelled, and the quicker you can get down that road, the better. But you will have to travel the whole road. You can't just get to the destination. You can't wing it. Genius investors are not 'talented'. They were not born able to do it. They learned the art of investment. No one starts miraculously knowing how to invest.

Let’s Start: Self Super

There are a few obvious approaches to be taken if you're looking after your own super.

The first thing to understand is that contrary to a lot of closed-minded comments you will hear over a BBQ sausage, it is not gambling.

Investing is not about avidly trading and being 'aggressive'. Those that trade do not last long. You need to look up from your screen to the horizon. The whole industry paints a picture of speed and opportunity. It's trying to get you to trade as much as possible. The more you trade, the faster the money moves from your pocket to the industry's pocket. Step back. There's no rush, especially not at the beginning when you're a bit green.

And whilst I'm here, stop listening to the dull and ignorant passing sweeping comments about the stock market. They do it from a position of not being involved. Ignore the ignorant cliché comments implying that the stock market is some sort of Machiavellian plot and that there are forces at work trying to suck you in and spit you out. And that if you're not on the inside, you're on the outside. I once met an old trader in the lift. We were talking about inside information, and he said, "If I had never heard any inside information in my career, I would be a million dollars better off". Hilarious.

Another fact of life in the stock market: anyone who trades a lot, doesn't last the course. There's nobody who has succeeded in the management of their super who is an avid trader. Trading is probably the smallest group of investors in super, at the very edge of the bell curve. That is not what you have to do.

There are two basic approaches to managing your own investments in the long term.

And we have invented a third.

If you've ever felt overwhelmed about your superannuation, you're not alone.

Whether you're unsure about the best approach to super management or hesitant to dive into self-directed investing, this workshop recording is for you.

Watch now - click here.

Investing for Income

The first basic approach is to invest for income, and we cover that in the newsletter. We've got an Income Portfolio. You'll see a lot of managed funds target income because they know there is an almost universal interest in income in Australia, largely because of franking.

In the newsletter, we colour income stocks and the Income Portfolio blue. Blue investors are not super interested in capital gains; they're interested in earning an income off their nest egg. Of course, they do enjoy capital gains, but the goal is to earn an income they can live off, and success is to grow their nest egg every year at the same time as earning an income.

Income investing is the most common option for super. And it's not hard. There are certain stocks perfectly suited to it, and it's not a long list. Google the holdings of income-based managed funds focusing on income, and the same stocks turn up in a portfolio. Most obviously banks. Particularly Commonwealth Bank (ASX: CBA). We have a member who has the whole of his super in the CBA. It is arguably the best income stock in the world (that's not a recommendation; it's expensive at the time of writing).

So you can see how this is done. Pick 10-20 stocks that fit the income stock requirements. A higher than average yield, with 100% franking (not completely necessary) and reliable earnings that allow the company to pay a reliable dividend. Note that there are income stocks, and there are stocks with high yields. They are not necessarily the same. We cover this regularly in the Marcus Today newsletter with daily commentary on the Income Portfolio and its holdings.

Investing for Growth

The next option is to be a growth investor. We colour everything to do with growth in the newsletter yellow. Investing for growth means growing your nest egg. This is traditionally suited to the age group of 20 up to 60, to people who have not yet retired, those who still have an income, and can take on a little bit more risk.

Growth investing is for people looking to grow their capital rather than earn an income. It is an approach that requires you to be interested and passionate, because you'll need to do a fair bit of reading and have a higher level of vigilance than income investors.

We run a Growth Portfolio in the Marcus Today newsletter which you can emulate, which focuses not on yield but on high return on equity with as little volatility as possible. So that's your second obvious option: growth investing. Forget trading. Nobody does that long-term and succeeds.

Self Super - 3 Approaches to Managing Your Own Investments

Unlock Your Investor Identity

Timing the Market

The third option, which we colour green, is to time the market through exchange-traded funds (ETFs). It is too long an explanation as to how we do it, but as I have grown older and with my experience, this is how every investor goes over a long period. They tend to start to reject risk and volatility. That's not what the game's about. The game is about being able to sleep at night whilst you successfully invest on your behalf. To be interested and stimulated. To be confident that you know what you're doing, and to have certainty and comfort.

We've discovered the formula for that through our ETF-based market timing Strategy Portfolio.

Some of the most traded ETFs we use are the passive ETFs that perfectly emulate an index like the NASDAQ, the ASX 200 index, or the S&P 500 index.

So that's the third option, which is the most relaxed, and we have found, provides the best profit-to-risk ratio. We had a fabulous year last year. Our Strategy Portfolio was up 34.25% when the market was up just 5%. You can follow that in the newsletter, and soon, we hope to offer a real fund for you to invest in that will copy our Strategy Portfolio.

Finally, a word on trading. Everyone does a little bit of trading on the side. Most of our members do, and we have a Trading Ideas Portfolio for that. Each trade is an individual trade and they tend to be short-term (weeks or months). But it is income investing, growth investing, or ETF investing that underwrites long-term success.

Hopefully, one of those options will suit you. And if you want to see how to do those, look no further than the Marcus Today newsletter.

More about the author – Marcus Padley

Marcus Padley is a highly-recognised stockbroker and business media personality. He founded the Marcus Today Stock Market Newsletter in 1998. Over the years, the business has built a community of like-minded investors who want to survive and thrive in the stock market. This is achieved through a combination of daily stock market education, ideas and activities.

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