A tale of two SMSFs

Published on: January 15th, 2024

When it comes to managing your self-managed super fund (SMSF), a lot is at stake. How your fund is managed can make or break your retirement. And when you have so much access and control to make changes to your investments, it’s essential to have a diversified investment strategy and the discipline to stick to it, even when the market is unfavourable.

We often talk about significant market downturns as once-in-a-generation events, but most retirees today have experienced both the global financial crisis and COVID-19, so these events can and do happen far more often.

Your SMSF should be structured to weather these types of financial storms, and it’s important that you don’t make panicked movements when they do occur. To illustrate how big an impact the wrong moves can make, I’d like to share a real tale of two SMSFs.

Staying the course reaps rewards

The first SMSF belongs to an Apt Wealth client. To maintain his anonymity, let’s call him Peter. Working with Apt Wealth, Peter maintained his SMSF with a strict investment philosophy and a best-practice structure designed to weather changes in the market. This involved keeping a portion in cash and being proactive and responsive to market movements but not panicking. It was aligned with his risk profile and his retirement goals.

In March 2020, Peter had already retired. When the market dipped 20% almost overnight due to the impact of COVID-19, he saw his balance go down and was, like most of us, concerned. However, he kept faith in the process. During the downturn, he held onto his shares despite the volatility and drew his pension payment from cash reserves within his fund.

When the market recovered in March 2021, he rebalanced his portfolio to top up cash reserves by reducing a portion of his shares after they recovered. Today, his capital is still intact thanks to a well-thought-out investment strategy, and he continues living the retirement he always wanted. He doesn’t have to worry about money and is free to enjoy life.

A panicked response leads to long-term impacts

The second SMSF belongs to a friend of Peter’s. Let’s call him Jim. Jim also retired in 2017. He recently contacted Apt Wealth for advice after talking with Peter and finding out that his capital had remained intact throughout his retirement.

We quickly established that Jim’s capital had been eroded because he responded to the significant market decline in March 2020 in the worst possible way – by selling all his share investments into cash when interest rates were virtually zero.

He simply locked in the losses, and when the market rebounded by 20% at the end of 2021, he missed out on the gains and the best part of a 40% swing.

Today, Jim is now drawing down on his capital, and with his working life at an end, making up the losses is impossible.

There is now a $400k–$500k delta between the two parties. And it’s not just about the dollar figure – it’s the peace of mind.

Jim constantly worries about money and always thinks ahead to when his funds will run out. It has caused him a great deal of stress, which he believes has played a role in his declining health.

The value of expert advice

Of course, those in retail and industry funds can also make these kinds of moves. But with an SMSF, the increased control gives you a much broader scope to make your own moves, potentially the wrong ones.

That’s why it is critical that you work with a financial adviser to set and regularly review your investment strategy. It’s not just about setting a strategy; it’s also about having an expert sounding board when you are thinking about making moves.

We saw many of our clients feel a little panicked during the events of 2020. It’s only natural to worry in these circumstances. However, expert guidance saw them stay the course, and like Peter, they have reaped the rewards.

And when the stakes are as high as they were for Peter and Jim, it simply doesn’t make sense to go it on your own. The value of advice can go far beyond the financial, too, ensuring you have the peace of mind to live your best life today and into retirement.

General Advice warning

The information provided in this blog does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) and Apt Wealth Home Loans (powered by Smartline ACL 385325) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.