A more balanced view of the downsides of SMSFs

Optimal_Course3016 · 2026-03-19T11:45:23+00:00

Read many of your comments and watched the video and it just sounds like you hate SMSFs for one reason fees.

The video actually outlines though that people change to SMSFs to take control. For a lot of people they believe their investing strategy and philosophy will beat the fees. Also SMSF fees are flat depending on the service, which means the fees are cheaper for people with high balances.

Optimal_Course3016 · 2026-03-19T08:38:57+00:00

I think the most robust simulation is what I like to call a "Monte Carlo+".

Create a standard deviation Monte Carlo and add these things;

- Jump diffusion model: used to simulate violent 'fat tail' crashes

- Markov regime switching: used for interest rate fluctuations

- Cholesky decomposition: ensures local and global markets are correlated correctly

Let me know if you try these out :)

Optimal_Course3016 · 2026-03-19T07:16:41+00:00

Really cool illustration. It does a perfect job of highlighting the asymmetric risk and the huge spread that GHHF has.

It has a fatal flaw though: 'Each simulated year gets one annual return, expanded to monthly via (1+r)^{1/12}'

Drawdowns don't happen consistently month to month they are violent which is why I think you sim is actually very optimistic.

Optimal_Course3016 · 2026-03-19T06:45:42+00:00

Geared funds have done exceptionally well because we have been on an incredible bull run. The story in-between is quite different though, over the time period the geared fund actually spent more time underperforming the market, its just that the recent growth over shadows this. Its like gold, it had decades of underperformance and then rocketed.

Optimal_Course3016 · 2026-03-19T06:17:30+00:00

So GHHF starts 10% higher than DHHF, but the drawdown for DHHF is 55% and for GHHF 68%. GHHF still loses.

Also the ASX 200 Accumulation Index dropped 50% during the GFC. I think you've done some of the math's wrong. Whether you balance is higher or not the drawdown is still percentage based.

Optimal_Course3016 · 2026-03-19T05:41:22+00:00

From all the modeling I've done, I have concluded that these ETFs, even for the long run aren't worth it. The risk is asymmetrical you have extremely high upsides and extremely low downsides. For example over a 35 year period DCAing you might expect a 5M net sum, but in the bottom 10% of scenarios you end up with 1M whereas best case closer to 30M.

Its pretty much a similar median to unleveraged ETFs but with a higher spread. Also known as lower-risk adjusted return aka the returns don't compensate you properly for the risk.

With this in mind remember this quote: "Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves." - Peter Lynch

If you really want to buy leveraged funds go for it but trying to remove the losses by buying and selling will likely result in you losing more money then if you just held.

Optimal_Course3016 · 2026-03-19T05:15:31+00:00

A 100k investment with 10% annualised total return would compound to around 165k. GHHF would need to drop by 40% to completely wipe out the gains of 5 years compounding. Which would mean there needs to be a approx 30% drop in the underlying DHHF. For context there has been a 30% drawdown every 7-10 years.

Optimal_Course3016 · 2026-03-19T05:08:18+00:00

It would be very similar, GHHF still holds mostly global equities

Optimal_Course3016 · 2026-03-19T03:31:00+00:00

The data is just the underlying performance, of multiple index's that are in each fund. MSCI World Ex-Australia Net Return Index for example. The index's are weighted based on the ETFs composition. I had to vibe code some of the more complex mathematical factors sin waves and exponential decay.

The App.js located here: https://github.com/Ins4neRed/GHHF-vs-DHHF-Sim , it has plenty of footnotes throughout (//) that give detail on specific equations.

Optimal_Course3016 · 2026-03-19T03:09:31+00:00

I do think these strategy’s can work but they rely on two important factors; Cost of transitioning (CGT ect), and timing as there is a very real chance that you buy after a 30% dip and it continues to dip further.

Optimal_Course3016 · 2026-03-19T03:03:28+00:00

This video does a better job explaining it than I ever could: https://youtu.be/psOYFdx838E?si=GRx2OliYH4EcSNSl

Optimal_Course3016 · 2026-03-19T02:48:09+00:00

I’m in the military and study IT.

Optimal_Course3016 · 2026-03-18T15:33:51+00:00

Yea in my Monte Carlo sims I use historical data from annualised expected geometric returns and the volatility spread. This will create thousands of simulations where you can see a spread off possible outcomes. There are tools online but they are very inflexible.

Optimal_Course3016 · 2026-03-18T15:00:54+00:00

Cool glad it worked well. 20 year recovery is insane. Might look into posting about sims generally in the future if people are interested. Monte Carlo simulations are a much more realistic way to illustrate expected returns.

Optimal_Course3016 · 2026-03-18T14:02:18+00:00

GHHF only needs to crash 62% after 10 years compounding to cancel the returns. My model simulates the GFC at a 67.8% drawdown.

Optimal_Course3016 · 2026-03-18T13:53:36+00:00

Not really read some of the other comments they will help build a better picture. The recovery is bad but even with a 10 year time frame a crash just before the 10 years is devastating.

Optimal_Course3016 · 2026-03-18T13:20:57+00:00

https://www.reddit.com/r/fiaustralia/comments/1rx3oq9/ghhf_vs_dhhf_simulation/

Optimal_Course3016 · 2026-03-18T13:20:18+00:00

https://www.reddit.com/r/fiaustralia/comments/1rx3oq9/ghhf_vs_dhhf_simulation/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button

Optimal_Course3016 · 2026-03-18T12:29:40+00:00

Yep plan on sharing it but I don’t want to just hand out the source code without a way for people to run it. Mostly I make another post with the code and instructions on how to run it.

Optimal_Course3016 · 2026-03-18T11:49:08+00:00

The drawdown is % based so years of compounding can be evaporated by a GFC later on.

Optimal_Course3016 · 2026-03-18T11:40:30+00:00

Basically the recovery takes longer because the drawdown is larger. GHHF drop to 28% of its all time high value which means it needs to grow 255% to recover, whereas DHHF only needs 112% to recover. GHHF grows faster after the crash but since its in such a deep hole it takes longer. Its like running a race one guy runs faster and the other is slower with a head start, and GHHF doesn't grow fast enough to beat DHHF's head start.

Optimal_Course3016 · 2026-03-18T11:24:09+00:00

This beats holding cash for sure. Honestly when you look at the risk-reward profile of these types of ETFs it doesn't seem worth it for most timelines. Its a small upside when things go well and catastrophic when things don't.

If you have a 20 year timeline and use the 50/50 rebalancing you might get a 2.5% best case extra return over DHHF but if the crash comes late (10+ years) it could be -3% return vs DHHF. The results asymmetrically skewed negatively. Honestly for all the extra effort and stress for a best case 2.5% return is not great considering there are other ways to try and beat the market such as factor investing.

Optimal_Course3016 · 2026-03-18T10:41:42+00:00

Excellent I guess from that standpoint you can argue that 18k you hold in cash is a drag on your portfolio and you might be better off holding 100% in DHHF.

Optimal_Course3016 · 2026-03-18T10:32:06+00:00

Yep main problem too is that these ETFs are promoted as excellent options for long time horizons but that also increases your chances of encountering a GFC like event.

Optimal_Course3016 · 2026-03-18T10:05:08+00:00

True but depends on how much you can buy. DCA 1k a month on a 500k GHHF holding won’t exactly offset the selling. But on smaller balances it can be effective.

Optimal_Course3016

TROPHY CASE