Is Self Managed Super right for you?

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Self Managed Super Funds or SMSF
Is Self Managed Super right for you?

Jan 17

Self Managed Super Funds – or SMSFs as they are commonly referred to – are a growing trend in Australia as more and more Australians want to be in the driver’s seat on the road to investing for retirement.

The number of Australians who are opting to set up their own Self Managed Super Fund (SMSF) is snowballing rapidly, with over 503,000 funds established by March 2013 – over double the number in 1999.[1] There has been even greater appeal in recent years since changes in legislation have made it now possible to borrow within an SMSF for investing in assets, such as an investment property.

So how do you know if a Self Managed Super Fund (SMSF) is right for you too? While it seems to be flavour of the month, there is a lot you need to understand before jumping on the bandwagon.

For some people an SMSF is an excellent tool and can be very worthwhile – after all, it offers ultimate control over the money you will have to retire on. You make all the investment decisions and can get your super working for you, including accessing unique tax and investment opportunities.
Note: SMSFs are not appropriate for all investors due to the time, cost and responsibility involved in managing an SMSF and because they are not cost competitive for lower balance accounts.

That said, it’s something you need to go into with your eyes wide open, knowing that there is the challenge of managing the administration and compliance of an SMSF. As a member of an SMSF, you are the trustee of the fund and therefore have many legal and financial obligations – and the buck stops with you.

Here are three important questions you should ask yourself before considering leaping into an SMSF:

Do I have the money? According to the Australian Taxation Office, it costs around $2,000 a year to run a medium-sized fund. So for a person just starting out with only $10,000 in retirement savings to invest, their nest egg could all but disappear after a few years. On the other hand, if you have built up say $200,000 or more for <title=”Retirement”>retirement, it may be worthwhile investigating if an SMSF is right for you – and one of the best ways of doing this is speaking to a financial planner.
Do I have the expertise – or expert advisers who are up-to-date in this area? This is something that can’t be understated – in the past financial year there were almost 20,000 breaches to the SMSF rules². As a trustee of the fund, you are responsible for ensuring the fund complies with super and tax laws, including reporting on its operation to the ATO. You might be confident about calling all the shots about your investments, but if you are time poor you will need help with the administrative side of running an SMSF from an administration provider who specialises in this area. It’s a complex area and you want to make sure you’re getting the right advice – your financial planner can help you find a suitable administrator.
Do I have enough diversification in my portfolio – or do I have a plan to build diversity? SMSFs have some big ticks in the box, but one of the keys to a healthy SMSF investment strategy is diversification. It’s important to maintain a diversified portfolio – or at the very least have a plan to build diversity into your portfolio over time. Asset classes perform differently at different times so it’s important to do your research and ensure you have the mix right.

In essence, SMSFs are best suited to those people who have the money, the time and knowledge – or who have the support of well-qualified financial planners and administrators to run them. They can be a powerful way to make your own investment choices and build your super to live the life you want in retirement.

1. Source – ATO SMSF Statistical Report, March 2013
2. Australian Taxation Office:
http://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Super-statistics/SMSF/Self-managed-super-funds–A-statistical-overview-2010-11/?default=&page=27#Compliance

Is Self Managed Super right for you?

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