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Younger generations lead the SMSF surge: Vanguard

A Vanguard SMSF investor report has found that the newest cohort of trustees are younger, confident and more engaged with their superannuation.

The report stated on an average basis, newly established SMSFs have continued to be set up by younger investors at lower balances.

Between 2006 and 2014 the average age and balance at the time of SMSF establishment were 51 and $530,000 respectively. Comparatively, between 2020 and 2022, the average age of SMSF establishers was 46 and the average balances stood at $340,000.

While the ages and financial circumstances of SMSF investors have changed, according to the report the top reason for SMSF establishment remains unchanged. The key driver for setting up an SMSF is the desire to have more control over investments.

Though not unique to the younger cohort, a wish to achieve better returns and seek better investments than APRA regulated super funds was also a key motivator for SMSF establishment. Correspondingly, this cohort was more confident in its abilities to manage its own financial affairs.

Vanguard Australia head of personal investors Balaji Gopal said: "Research tells us that a record number of new investors made their first trade during the pandemic and a large proportion of these new investors were Millennial and Gen Z's."

"Unsurprisingly, many of them want full control of their retirement and superannuation is a vital component of that journey."

Albeit control being the primary reason for setting up an SMSF, the report found that those who did were most likely to identify themselves as buy and hold investors.

"It's normal to want an investment portfolio to consistently deliver better outcomes than the market averages, but as history tells us, it is much harder than we think," said Gopal.

"Over time what we see is that those who choose to invest in a well-diversified portfolio, using the time-tested principle of investing to capture market gains over the long term are the ones who are more likely to achieve their financial goals."

The report illustrated that SMSFs cited rising interest rates, inflation and market volatility as the foremost factors likely to influence their investment decisions in the next 12 months. Though Gopal prescribed that investors stay the course and ignore the short-term noise from financial markets.

Also notable, the report said that while the number of SMSFs who used a financial adviser remained steady, the proportion of advised SMSFs had reduced to its lowest level since 2019.

Research revealed that the main barriers were the cost of seeking advice and self-perceived confidence in managing one's own financial affairs.

Gopal commented: "Previous Vanguard research found that advice provides quantifiable value across the board, regardless of whether clients were human-advised or digital-advised, with the former attributing 5% of their portfolio value to advice and the latter, 3%."

"Periods of market volatility like what we're currently experiencing further highlight the value of advice and the benefits that an adviser can deliver, whether it is investment expertise or coaching for emotional reassurance."

"There remains a plethora of opportunities for advisers to help investors of all kinds understand the value they bring and the support they provide during an investment journey."

Read more: SMSFVanguardBalaji GopalFinancial adviceVanguard superannuation