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Measuring your superfund performance

Recent research by Russell Investments and the SMSF Professional association of Australia has found that when it comes to measuring the performance of self managed super funds, DIY investors are inclined to look the other way instead of revealing the inconvenient truth.

Of the 870,000 individual trustees involved in the Self Managed Super Fund Industry, Russell Investments and SPAA found that only 31% of trustees personally set performance goals based on the level of income they require when entering retirement. Just over one quarter measured their returns against the All Ordinaries index, while another quarter aimed to outperform the consumer price index by a certain margin. This left about 16% who said that they did not measure the performance against any benchmark.

While control may have been a valid reason for establishing a self managed fund, most trustees have little idea how retirement capital is doing compared to what type of performance is on offer.

Performance benchmarks

Predefining how you will go about measuring performance asks the even bigger question of ‘what type of returns am I seeking’. This questions needs to be answered in the beginning because depending on your answer, will determine the type of strategy you put in place.

Before selecting a strategy you need to be able to match your investment knowledge, skill level, risk tolerance, starting capital and your time to the type of returns you are seeking. There is little point chasing rocket fuelled type returns if you don’t have the knowledge, time, skill or risk tolerance to cope with the volatility that comes along with it.

For those that look to the stock market for returns there is a simple performance measure.

Rather than comparing your returns to the All Ordinaries index (ASX500 stocks excluding dividends), look to measure your results against the All Ordinaries Accumulation Index. While managed funds and super funds tend to compare their returns against the ASX200 or All Ordinaries, the Accumulation Index for either provides the perfect private investor benchmark. If you’re unaware, the All Ordinaries Accumulation Index includes company dividends. And your performance shouldn’t just match the Accumulation Index, it should outperform it by a few compounded percentage points per annum depending on how active your strategy is and how much risk you are prepared to take.

If you have not previously adopted an approach of measuring your performance against a benchmark, I urge you to gain an understanding of how well your retirement savings are growing.

Super is a long term investment and there are certain to be times when your approach will vary from the benchmark. This is acceptable in the short term especially if your approach has demonstrated performance in the past.

For most of us, managing our self managed super funds becomes one of the most important roles in our lives. It’s critical that you understand what type of performance is on offer so you can look to better it. A little better performance year on year over many years adds up to massive out-performance when it comes time to retirement.

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