The investment trading behaviour of Australian self-managed superannuation fund trustees before, during and after the 2008 global financial crisis

The investment trading behaviour of Australian self-managed superannuation fund trustees before, during and after the
2008 global financial crisis

Self-Managed Superannuation Funds (SMSFs) play an increasingly important role within Australian retirement planning, with over a third of all superannuation savings held by SMSFs. This study adds to the relatively limited research on SMSFs through an examination of the investment decisions of SMSF trustees over the period prior to, during and after the 2008 global financial crisis.

Anecdotal evidence suggests that SMSFs out-performed other superannuation providers during the 2008 global financial crisis, largely due to the high cash weightings within SMSFs. This study investigates whether or not there is evidence of an ideal investment strategy by SMSF trustees over the period 2005 to 2011, a period which encompasses a period of significant financial stress. The investment transactions of a sample of SMSFs over the period 2005 to 2011 were analysed in order to allow for observations to be made regarding the timing and nature of SMSF trustee investment decisions. The results of the analyses suggest that there is little evidence of an ideal investment approach adopted by SMSF trustees. SMSFs tended to increase market risk exposure prior to the global financial crisis, failed to take advantage of lower asset prices during the financial crisis and adopted a more defensive investment approach in the period following the financial crisis. The relationship between SMSF size and SMSF risk profile and trustee investment decision-making was also investigated, finding that smaller SMSFs tended to adopt the least appropriate investment approach and that only a weak relationship exists between SMSF risk profile and the investment approach adopted by the fund’s trustees. SMSFs within the sample also exhibited a number of behavioural biases and heuristics, including loss aversion, representativeness and cognitive dissonance.

The findings of this study suggest that greater attention from policymakers and regulatory authorities on the investment decision-making of SMSF trustees may be required and that further research on the prevalence and impact of behavioural biases on SMSF trustees may be warranted.