Investors admit the hardest part of running an SMSF
Running a self-managed superannuation fund (SMSF) is no picnic. The 1.2 million trustees of Australia's 572,000 SMSFs have to be on top of the paperwork and administration, rules and regulations, accounting and tax, plus keep the trust deed up to date.
In the year to the end of March 2016, the hardest aspect of operating a DIY fund was compliance, according to an annual report on SMSFs conducted by research house Investment Trends for Vanguard.
But this year SMSF trustees confess investing is the toughest aspect.
With term deposit and cash rates dropping, direct shares such as resources and banks taking a hit, the Australian sharemarket returning 0.5% for the 2015-16 financial year, it isn't easy to find a good investment.
The main goal of around 50% of SMSFs is to grow their capital but this is proving tricky in a low-growth environment. Around 36% of SMSFs aim to build an investment portfolio that gives them a sustainable income stream while 12% invest in assets that are protected against market falls.
There is a lot to worry about when it comes to investing, according to Recep Peker, head of research, wealth management, at Investment Trends. Trustees are fretting about the impact of the slowdown in China, global debt, sharemarket volatility, property prices and regulatory changes. At least half of the 1.2 million who are SMSF trustees are in the drawdown phase, relying on income from their investments.
SMSF trustees' appetite for individual direct shares has fallen. Last year 65% of trustees intended to invest in blue-chip shares over the coming 12 months but this year the figure has dropped to 55%. Even high-yielding shares are less popular, dropping from 32% in 2015 to 24% this year.
Five investments that are more popular this year with SMSFS are managed funds, real estate investment trusts, infrastructure, small-cap speculative shares and property syndicates. The percentage of managed funds held by SMSFs dropped after the GFC to a low of 6% in 2012 but has grown to 10% over the past year.
Low-cost and diversified exchange traded funds (ETFs) are becoming more popular. Around 83,000 SMSFs hold ETFs, up by 18% from the previous year.