If you already follow your own superannuation fund closely, you may find the additional control that you get running a SMSF to be more satisfying, but it will take time and there are ongoing costs. There’s an investment in time required at the outset to understand the legal and regulatory requirements, as well as an analysis of your finances to see if a SMSF is right for you. And an interest in investment is also helpful. Whilst direct property is one of the most popular SMSF categories, direct shares and cash can round out a personal superannuation portfolio.
Running a SMSF can be time-consuming. Firstly, you need an investment strategy with a plan that’s reviewed periodically to make sure it’s achieving the value you plan to take into retirement. Then you need to make sure you have enough capital and lastly, the time to run your SMSF, whether you administer the fund or place it in the hands of experts.
Lifestyle and You
Developing a strategy can help you determine how – and with whom – you invest in and share your SMSF. Year on year, three asset classes out-perform all others: direct property, cash and direct shares. There are a number of ways to consider and select your investments and there’s really no limit to your options.
You may want to consider your interests before establishing a fund. If you have a medical practice, investing in devices or pharmaceutical shares could be a natural fit for your SMSF. If you’re also interested in renewables or health, looking at shares in these categories will make it easier to stay on top of your investments from day to day.
Time, skills and costs
Running a SMSF requires more time than an industry super fund. You can run a SMSF with up to three others which can give you a broader interest and skills base to draw on as well as a wider interest in investment types. Keeping a close eye on the performance of your industry super fund is a fairly good indication of an ongoing interest in a SMSF.
Firstly, you’ll need capital to start a SMSF, which you can provide yourself, or with up to three other investors. An initial investment under $100,000 isn’t going to be very cost-effective, with set up and operating expense fees consuming up to 10% annually, However, if you have more than $100,000 and are prepared to undertake some of the administrative and investment functions, a SMSF is the most competitive superannuation solution.
You’ll then need an investment strategy, as well as legal and financial advice to ensure you comply with laws pertaining to establishing and operating a SMSF. The administration and investment functions can be performed by the SMSF investors themselves, which include the preparation of an annual tax return for your fund, amongst other functions. Depending on your initial investment, you can spend anywhere from 1-10% of your initial capital to set up your fund.
There are also fees associated with your annual return, insurance for the members of the fund and administrative costs. The annual operating expense ratio (OER) of a SMSF is generally under 1%, but can be as low as 0.25%.
After all is said and done, you may find the set up fees and ongoing costs outstrip the benefits, but without a thorough account of your current situation and a SMSF, it’s difficult to determine what’s right for you.
Personalised advice for your needs
If you’re in the early stages of your career and have a small amount of equity saved, it may be worth considering setting up a SMSF to build wealth more quickly with a partner or up to three others, whilst at a more mature stage in your career, you may be looking for the security a source of revenue can provide in your retirement.
Tailoring a solution to your needs requires an understanding not only of your life stage, but the life path you’re following. If you intend to change careers at some stage, travel for an extended period or leave the workforce to start a family, you need to talk to a professional for advice to help help you to consider all the events in your life that can determine the Superannuation investment strategy that best suits you.
Wealth creation starts with small steps and great advice
We have practitioners who are experienced in running their own SMSFs who can provide first-hand insights into the peaks and pitfalls as well as the expertise to administer a fund for you. If you have any questions about SMSFs, please don’t hesitate to call one of our SMSF experts to address your concerns.