According to the ATO, SMSFs or self-managed super funds make up 30% of all super assets in Australia, with 595,840 SMSFs holding $712B in assets with over 1.1 million members as of March 2018.
With over a million Australian’s enjoying the freedom and benefits of an SMSF and all the while the Banking Royal Commission airing the banking and superannuation company’s dirty laundry in terms of exorbitant fees, lack of performance and ‘fee for no service’ offerings, the sector is set to grow exponentially over the next few years.
Before heading down the path of setting up an SMSF, it essential to discuss your plans with a qualified, licensed professional.
How does an SMSF work?
A self-managed super fund gives you the control over your retirement funding. Rather than your employer paying your contribution into a retail fund, which provides you with a range of investment options as part of a ‘fund’, your money is paid into an account that the trustee controls.
You can invest this money into shares, property and cash products. The key is, you are responsible for the investment strategy which needs to take into account all of the SMSFs circumstances including investment decisions, liquidity, cash flows and the diversification for the trustees and its members.
Additional responsibilities are to be compliant with tax and superannuation laws, reporting, lodgement of tax with the ATO and, auditing.
There are benefits and risks of an SMSF and for many Australian’s it simply wouldn’t be an option as there is far too much risk and work involved, while for others especially those with a finance background, having the control on one of their largest asset pools is something that again – is a no-brainer.
What are the benefits of an SMSF?
The benefits of an SMSF for you as the trustee are:
With Smart Money Company SMSF management administration costs are fixed, as your portfolio grows your administration costs stay consistent providing the benefit of capped costs for your managed fund.
As an SMSF you must lodge a tax return with the ATO and while your ATO fees may be variable based on the returns of your fund, having capped administration costs for your SMSF provides peace of mind and transparency.
Where you invest
In regards to investing, you may have a great interest in the property market, or see an opportunity with an IPO, high-interest saver or even international shares.
Through an SMSF, this gives you an opportunity to invest in these areas, while as part of a retail fund, you can only choose the ‘risk’ elements and the general areas you wish to invest in.
As the trustee, you have the ultimate control and can take advantages in market movements, buy, sell, accumulate or dissipate as you see fit.
You know what you are investing in, how and why. In addition, the only costs and fees that are being taken from your superannuation are those you as the trustee are completely aware of – no ‘fee for no service’ here.
Set yourself up for your retirement
Many SMSF’s have taken advantage of investing in properties for the future use of the trustee. For example, purchasing that beach house you always dreamed of living in when you retire, renting it out and your SMSF is the owner, receiving the rental income.
When you retire and can access the funds in your super, your dream home becomes your personal asset and you are set for your retirement.
Through working with your tax and SMSF advisor, there is a range of tax strategies that can supercharge the growth of your SMSF and reduce tax payments especially in the years leading up to your retirement.
What are the risks of an SMSF?
Like every form of investing, there are risks involved in an SMSF. Firstly and most importantly, do you have the skills and knowledge to run your SMSF?
Are you across all the market information that is out there and available to base your decisions on?
Access to information & skills
Retail super funds are part of large institutions, such as banks and member-owned funds that have access to information and services that as an individual you just can’t access.
Their fund managers are experts in their field with experience in financial markets and delivering returns.
That being said there is a range of courses and workshops available to upskill and start understanding the markets, allowing you the information you need to understand the risks of SMSF.
Do you have the time to manage your fund, administer it, complete your tax return as well as all the other things you need to do with your day?
Many people don’t, but to combat this, many people would get an SMSF Administrator Service to provide all the necessary documentation and advise to save time and get things right.
FOMO (Fear Of Missing Out)
Having access to your superannuation, which allows you to invest in all sorts of vehicles to secure your future.
If, for example, you had been managing your SMSF and been caught up in the cryptocurrency wave, back in December 2017 you could have paid upwards of $24,000 for a Bitcoin, that Bitcoin today is worth around $7650 or 30% of what you paid back 12 months ago.
Not being an impartial and professional fund manager can allow users of the SMSF to invest in areas that are emotive, not based on sound data and market movements.
Why do I need an SMSF Administrator?
If you have decided that you want to manage your own financial future you need to take control and get an administrator.
An SMSF administrator allows you to begin on your SMSF journey with everything in place for success. This includes but is not limited to:
- Facilitating the correct set up of your trust
- Receiving all mail correspondence and managing all administration
- Assisting you in developing your investment strategy
- Ensuring that your SMSF is fully compliant with all government regulations
- Providing you with real-time reporting online, every day
In addition to this, a good SMSF administrator will provide you with opportunities for learning, development and upskilling yourself, as well as ongoing advice to get where you want to be, sooner.
Your superannuation is the key to your retirement, it’s the key to your happiness during retirement and will ensure you have enough money to live the lifestyle you are working so hard now to enjoy – so don’t leave it to chance.
Please note, all information is general in nature and does not take into consideration your financial situation.
If you’re thinking about setting up an SMSF, educating yourself on understanding how share markets work could help you in the future. Read our post here