Optimal SMSF performance threshold defined

The latest joint research from SuperConcepts and the University of Adelaide’s International Centre for Financial Services has determined the SMSF asset balance at which investment returns generated significantly improve for members.

The research report, “When size matters: A closer look at SMSF performance”, found the benefits of investment diversification became noticeable when a fund reached a balance of $200,000. “Where this research is interesting is we’ve always worked on the assumption that $200,000, or thereabouts, was the balance people needed to have in order to make a self-managed super fund a viable option from a cost perspective,” SuperConcepts general manager of technical services Peter Burgess told selfmanagedsuper.

“What this research says is well that is true but in addition to that, if you’ve got less than $200,000, you don’t get the benefits of diversification either.

“So essentially it’s a double whammy there.”

Burgess suggested the main reason behind the finding that SMSFs with an asset balance of $200,000 or more enjoyed better performance was that at that point members would have more money to allocate into a larger number of asset classes.

From a cost perspective, the study showed SMSFs with asset balances of $550,000 would see related expense ratios fall below 2 per cent and fund performance and diversification comparable to that of the largest funds in the industry. “What the report is saying is once you hit the $550,000 and you go over that threshold an SMSF is almost always more cost effective than other superannuation options,” Burgess said.

“Between that $200,000 and the $550,000 SMSFs are comparable to other types of funds and it depends on what the trustees decide to do themselves and what they chose to outsource.”

The research was performed using data collected between 2008/09 and 2014/15 from over 20,000 SMSFs. Funds included in the study had the administration function outsourced as well as potentially other operational aspects to an external party.

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