Is there wisdom within the crowd?
When saving for retirement, most Australians leave it to experts – superannuation fund managers – to make the big investment decisions on their behalf. But a growing number of people are taking their chances on an alternative route to retirement: self-managed superannuation.
But are SMSF members smarter? Do they reap bigger rewards than the rest of us by managing their own portfolios – as many of them do? Or, alternatively, are they collectively wasting their time and effort for little, if any advantage?
We analysed the investment performances of tens of thousands of SMSFs over an eight-year period, starting with more than 27,000 equity portfolios at the start of 2012 and expanding to more than 43,000 in 2020. Our research revealed that SMSFs’ Australian equities portfolios had low levels of diversification and liquidity and many did not beat the market. Our research suggested that, over the study time frame, a large number of SMSFs would have been better off investing in a broad market index fund for their Australian equities or investing with active fund managers. We also analysed various strategies to identify SMSF winners and worst performers from the crowd. We backtested various selection criteria and processes to identify portfolios that delivered superior excess return over the market. Our research shows that there was indeed "wisdom" within the crowd of SMSF investors.