Are we about to see this type of portfolio surge?

There’s been a lot of talk about heading into tougher markets for a while now. Consumer spending is *finally* starting to slow down (yes, all those Black Friday emails are not as positive for businesses as they sound) and markets are pricing in 2025 interest rate cuts. It could just be the perfect storm for a surge in investors opening a self-managed superannuation fund (SMSF), or so the data tells us.

Nabtrade’s Gemma Dale noted that there was an explosion of SMSFs during and post the GFC – it’s a trend she’s seen over time too.

“There are fewer establishments in years when the market is performing well than when it’s performing poorly because people get the statements and think, ‘all right, keep on cycling until next year'. But when the market performs poorly, they think, ‘right, that’s it. I’ve definitely got to get on top of this,” she says.

But what drives investors to consider an SMSF? It’s more than a challenging market and Dale discussed this in a session at the ASX Investor Day November 2024.

What does an SMSF investor look like? 

If you are not one of the 1.15 million members of an SMSF, perhaps your assumption is that an SMSF investor is extremely wealthy, living on the premium foreshores of Sydney or Melbourne.  However, an SMSF investor could be anyone – the operator of the corner store in your suburb, or that woman who sits across you on the bus listening to podcasts.

Of course, as Dale points out, if you just look at averages, that might be a reasonable viewpoint. The average total assets per SMSF are $1.6 million, and total assets per member are $835,000.

She finds it more useful to look at the median so that the figures are less distorted by extremes. The median total assets are $877,000 and the median total assets per member are $498,000.

Bear in mind that 85% of SMSF investors are aged over 45 years, so the balance that such investors will have started with looks different to the averages in industry super funds which will include anyone from a 14-year-old in their first job to someone in their 60s about to retire, or even someone with money in pension phase and still some in accumulation.

SMSFs will typically have two members (72.1% of SMSFs have two members). Dale has noticed that, generally, as people reach 50, they start to think more seriously about retirement and consider an SMSF to build up their assets.

Why do investors choose an SMSF?

There are a range of reasons that investors might choose to open an SMSF.

Dale says the primary reason is control.

Investors want control over the what, how and when of their investments. This is part of the reason for the spike in establishments in tougher markets – investors don’t want to pay others for any perceived mistakes, they’d rather make their own. 

The next reason is choice.

“This is not just ‘I want to manage my own shares’, although that’s a massive part of it. It’s access to far more variety in assets. Things like businesses, real property, crypto. Assets that you absolutely cannot access through a public offer fund,” she says.

She highlights that the ability to use an SMSF to buy property was a popular driver for their establishment from 2008 onwards, but “it has shrunk in popularity as people started to realise that it’s not as easy as borrowing to buy residential property in your own name. There’s a lot of complexity.”

Cost savings – which may surprise investors – is often another factor.

For example, if you are going to do all the work of investing yourself and select investments with low management fees, it could be cheaper than using an industry super fund.

It is often assumed that fees will average $10,000 per annum. Dale notes that this would be true if your savings were fully managed on your behalf by a financial adviser. In reality, the averages tend to be a bit lower.

Some investors may also find tax benefits from using an SMSF – and this ties back to the ability to control when you crystallise gains or not to factor in your tax outcomes.

For a select few with niche insurance needs, an SMSF structure could be more effective, however, most people benefit from the discounts that industry super funds can garner for insurance spread across a large number of members.

What do SMSFs invest in? 

Unsurprisingly, listed shares are the biggest component by far.

“Insurance policies, cash and term deposits are also a very big chunk and growing. It shrank for a long time as rates fell but are growing again,” Dale says.

Real property (yellow on the chart) represents commercial and residential premises – but Dale cautions that the requirements around how these are invested are extremely strict – you certainly can’t just buy the family home and live in it.

“Cryptocurrency is the topic of the day. Collectibles and personal use assets - that includes all sorts of things, artwork and so on. It's a huge range. But again, there are very strict rules about how you can use it. Don't go hanging the artwork in your house. Don't go wearing jewellery for investment purposes,” Dale says.

Some trends Nabtrade has seen in SMSFs

Investing in ETFs has been a significant theme for SMSFs – but then, it’s also been a theme for investors across the board.

“People who have had self-managed super funds for a long time buy offshore ETFs. They don’t buy domestic,” Dale says, noting it is used as a diversification strategy. By contrast, those starting out tend to use domestic ASX-focused ETFs.

She’s also seeing investors trimming positions in banks and “buying materials and energy. Just rotating back into BHP and Woodside.”

You can watch some of the highlights in the video below: