Written by: Lee Gray – The Pro Forum Community of Practice

With the current financial climate impacting on most of us, how do we look at ways to improve our financial position for the future?

Many years ago, I was fortunate to meet someone who introduced me to investing on the stock market. This led me in recent times to look at how my superannuation was managed and raised the question of ‘to self-manage or not to self-manage?’

Self-Managed Super Funds (SMSFs) offer several potential advantages for individuals looking to have more control over their retirement savings and investment decisions. Over the last 20 years Australian shares have returned an average of 9.8%*. The following is a brief guide of factors to consider.

 

Control of our Investments: SMSFs allow greater flexibility and control over investment choices compared to traditional superannuation funds. This control empowers you to invest in a diverse range of assets, including direct property, shares, term deposits, managed funds, and more.

Investment Strategy: You can create a personalised investment strategy aligned to your risk tolerance, financial goals, and preferences. Be aware this level of customisation isn’t usually available in retail or industry super funds. It is important to gain an understanding of how you feel about risk. The last thing you need is to have a strategy or lack of one that leads to stress.

Efficiency in Costs: For larger balances, SMSFs can be cost-effective as fees are often fixed, not based on a percentage of the assets. However, it’s essential to consider all costs involved, including administration, compliance, and investment fees. These can vary substantial, so ensure you do your research.

Planning: SMSFs can provide more flexibility in estate planning by allowing specific instructions on how benefits are distributed upon the member’s death, which can be advantageous for beneficiaries. Ensure you schedule a review of these on a regular basis to ensure any changes to personal circumstances are captured.

Borrowing for Investment: Firstly, ensure you have a sound knowledge on the impacts of interest rates on loans for investments. SMSFs can borrow money to invest in certain assets under Limited Recourse Borrowing Arrangements (LRBAs). This can be used to leverage the fund’s assets for potentially higher returns, although it also increases risk. More information on LRBAs is available on the Australian Taxation Office ATO website.

Tax Planning: SMSFs offer potential tax advantages, such as the ability to control the timing of contributions and pension payments, potentially reducing tax liabilities.

 

It is important to ensure you seek professional advice from a credible financial advisory organisation and an accountant on tax matters with your super. They will assist in assessing your financial position, suitability and any tax implications.

How you set up your managed funds will have legal obligations and you must comply with strict regulations set by the Australian Taxation Office (ATO). Failure to comply can result in penalties and other consequences. Additionally, SMSFs may not be suitable for everyone, especially those with smaller superannuation balances, as the costs involved might outweigh the benefits.

Remember, like all honest money earned it involves time and effort.

 

Ref: Stats used were obtained from:

https://www.canstar.com.au/investor-hub/australian-share-performance-30-years/

 

NOTE: The content of this article is intended to provide a general guide to the subject matter, and specialist advice should be sought about your specific circumstances. The content must not be relied upon as legal, technical, financial or other professional advice.