Book Review > DIY Super for Dummies
|Author: POWER, Trish||Publisher: Wiley Australia||ISBN: 9780 7303 78075|
|Location: Milton Qld||Price: 29.95||Reviewed by: Michael Stearn|
D I Why?
Running a DIY super fund can be a bit like that veggie patch you’ve always meant to set up in the back yard. Your images of dewy green snow peas and carrots bursting with goodness are slowly replaced by the reality of rot, disease, insects, too much water, not enough water and wilted seedlings that cost more to buy than grown-up vegetables. Not to mention the hours of research, workshops, digging and composting. In the end you realise that only a few true green-fingers have that special magic, and you’re not one of them. With a sigh of relief at getting your life back, it’s off to the farmer’s market once again.
The most important question in running a DIY super fund is should you start one in the first place. Is it really worth it? In my experience, you really need to have a good reason and you need to be the right sort of person. It is possible for your fund to fail and go to weed and it’ll cost you a lot more than a couple of hundred dollars contribution to your local nursery.
Trish Power in her latest book “DIY Super for Dummies” does acknowledge this question. She offers a “6c challenge” to help you work out whether you have the “opportunity, means, skills and inclination” to run a fund. But I found myself concerned at this early stage in what is largely a very useful book. You could get the impression that all you need is a pass in the “6c” test, some common sense and a healthy dose of cheerful optimism, and it’s green lights all the way to DIY super success.
The problem with these self-assessments is that you usually pass them. The people who are most likely to fail are also the most likely to be unable to assess their own abilities. They are also the most likely to be over-confident and to under-estimate the amount of effort, skills and knowledge required. They are also the most likely to misunderstand the risks they are taking by putting their money in the hands of an unproven fund manager – themselves. And they just can’t wait to get stuck into it.
This is the elephant–in-the-room with the volumes of DIY super guidance available out there. We shouldn’t need DIY super any more than we need DIY dentistry or DIY airlines. The flight to DIY super is an aberration - the result of a wide-spread loss of faith in the financial services industry. They blew our trust with under-qualified advisers, poor results and the “killer app”, high fees that are unrelated to performance. As we started to realise that we came last, and word got out that we were just “pond-life”, more and more people decided they might as well give it a go themselves. And rather than fix the holes in the boat, the industry responded by selling corks. More and more SMSF products appearing – and even more “muppets” set out on the dangerous journey.
Thousands of people out there managing their own funds should never be let loose on one - and their life savings are at risk. We all know stories. I know a guy who mortgaged his house for $300k and used it all to buy TZ Limited shares at $2.80 (now 30c) for his fund. He could talk for hours about the wonders of their intelligent fastening technologies. Or the man I met at an AIA annual conference who staked the family’s future on investing 80% of his fund in Karoon Gas at $8. He might see his money back after three years and his hopes will be alive again. A sense of mystical inspiration came over him as he talked of the extraordinary seismic characteristics of hydrocarbon bearing sediments in the Browse Basin. Both of these are men who look to the stars and know that their unblinking faith and patience will get them there before too long.
Which brings me to my other concern about “DIY Super for Dummies”. If I think over my seven years experience running a fund, the vast bulk of the work and responsibility is about investing - when to get in and out of what. Keeping your fund compliant is comparatively straight forward – the least of your problems. The need to focus on investing may sound obvious, but of the 280 pages in the book, less than 30 deal with investing and there’s really only time to brush over some clichés about asset allocation and the importance of diversification. The other 250 pages are about administration, tax rules and compliance.
Whilst we need to know that stuff, it’s self-evident that the bulk of our attention must be pointed at the epicentre of the risk. Ground zero is the portfolio. It’s where your zucchinis can go all rotten in the middle, the rats eat the broad beans and the watering system doesn’t come on while you were away on holidays. It’s also where you’ll face your own special demons around investment discipline and psychology.
“DIY Super for Dummies” is a good book for DIY fund managers to have on the shelf. It provides you with most of the fund administration background you could want. The author does well to make some very technical topics readable and understandable – contributions, trustees’ obligations, costs, administration and compliance, tax, paying benefits and pensions. It is a good primer for those considering starting a fund and as an experienced trustee I find it a very useful reference.” Many of the topics covered are also relevant to non-DIY super investors – concessional and non-concessional limits, salary sacrifice, income streams and transition to retirement to name a few.
There are some compelling reasons to have a DIY super fund, but those of us who have had the luxury of learning how to invest during a bull market can tell you that this is a bad time for new recruits to try their hand. Staking your nest-egg on your rock solid self-confidence could be a disaster from which you may never recover. All DIY super help books should be waving the caution flag.
If you would like to discuss any these issues further, go to the AIA Forum at http://www.investors.asn.au/forum/index.php. Look for the D I Why? thread in the Superannuation forum.