Ashwin Ramdas Updated Dec 19, 2022
Mate Checked
One of the most important benefits of having a self-managed super fund; the ability to time your contributions and market entries. We all know the “buy low, sell high” analogy but rarely is it considered when it comes to traditional super fund investments. Using a self-managed super fund is a common way of increasing your ability to time your investments and contributions.
In most circumstances, compulsory employer super payments are paid to the employee’s super fund every quarter when the employer is required to, on preset dates. The employee’s do not get to chose when they receive their contribution nor do they get to choose when the super fund invests their money, which can be problematic!
Only in hindsight is it easy to pick when markets are high and when they are low, so it is best to have a systematic approach to investing in your super fund, rather than a discretionary one. Investors tend to be most optimistic when markets are going up and pessimistic when markets are going down, which is often incorrect.
As a trustee of an SMSF and with keys to the fund’s bank account, you get the all-important choice to decide when those funds are invested in the market. Just like when you go shopping at the supermarket, you look for what’s on ‘sale’, the same process can be followed when deploying capital into the market from your SMSF.
Yes, there are some major assumptions to timing the market correctly, and it means you would have to have your ear to the ground at all times. The point is to illustrate the power of market timing and the flexibility a self-managed super fund can give you.
The same principle applies in reverse, if you’re given the choice of when to exit your investments, then you can ‘play the market’ in your SMSF whereas it’s very difficult to buy and sell units in a typical super fund. Again, you don’t get the choice to decide when you sell or when you buy, and so you are at the mercy of the market fluctuations.
Your decision on when to sell profitable investments is often what most investors struggle with the most. As the old saying goes ‘cut your losses early and let your profits run’ which for most investors, is the exact opposite of what they do. This is why it is best to have a systematic approach to selling investments and not base your decisions on discretionary or emotional analysis.
