Arm yourself with the research and take a closer look at what super might offer.
Superannuation isn’t something most people spend a lot of time thinking about, but it’s one of the most important investment choices you’ll ever make.
Most Australians’ super is in either retail or industry super funds, but over the past ten years more than 1 million people have set up a self-managed super fund (SMSF), drawn to the benefits of more control and choice – attractive factors for small business owners. However, cost, legal and management considerations exist for those who make the leap:
Controlling your own financial future
An oft-cited reason for setting up an SMSF is control over your investment portfolio.
An SMSF can have a maximum of four members who are either trustees or directors of the fund and are responsible for managing it. You have the flexibility to decide your investment strategy and how you would like to diversify asset classes and the spread of risk, according to ESUPERFUND.
“If you set up a self-managed super fund, you’re in charge – you make the investment decisions for the fund and you’re held responsible for complying with the super and tax laws,” according to the Australian Tax Office (ATO).
You’re also solely responsible for complying with super and tax laws falls.
“Compliance risk is borne by the SMSF trustees, who can be personally fined if their fund breaches the law,” say the ATO.
Identify whether you have the time and requisite skills to manage an SMSF, and ensure that you don’t fall afoul of the law.
Choice and investment options
While many super funds offer some choice over the makeup of your portfolio, SMSFs allow you a greater field of potential investment choices.
According to the ATO’s SMSFs report, the three most popular options for SMSFs are direct shares, cash (and term deposits) and property.
The latter has become a particularly popular option due to legislation allowing them to borrow money to purchase property, as well as booming residential property markets around Australia.
Westpac states: “SMSFs can also invest in debt securities, gold and other valuable metals, derivatives and instalment warrants, listed and unlisted trusts and subject to various requirements, collectables such as artwork.”
But the ATO warns there are still restrictions.
“Don’t set up an SMSF to try to get early access to your super, or to buy a holiday home or artworks to decorate your house. These things are illegal,” their website warns.
Avoid fees and costs
By running an SMSF you can potentially save money on paying fees and charges. But SMSFs are not immune from cost; they take money to establish and maintain, including annual independent audits and a supervisory levy.
How much do you need to cover the costs? The Australian Securities and Investments Commission (ASIC) recommend a starting balance of at least $200,000. However, in theory, you can start an SMSF with any monetary amount at any time.
The advantages of an SMSF are attractive, but make sure you have the time, knowledge and skills before making a commitment.
For more information on establishing a SMSF, visit ESUPERFUND.
Written by: Jacob Robinson