Self-managed Super funds (SMSFs) have become very popular in the last 10 year or so and while they offer many excellent opportunities they aren’t a good option for many people.
The following guidelines are a start in working out whether a SMSF will work for you. It is best to discuss these in relation to your individual circumstances and goals with a properly qualified financial planner.
1. Make sure you have sufficient funds to make a SMSF worthwhile. $200,000 is generally considered the minimum
2. A SMSF takes time, money and expertise. A desire for choice and control over your investments needs to be matched by a commitment to do it properly.
3. Acting as a fund trustee is a significant responsibility. Speak to a financial planner or an accountant to get a clear picture of what this involves.
4. Think carefully about how you invest. Choose assets that will grow in value over time – if you just invest in managed funds, a share portfolio or bank cash management accounts and term deposits it is questionable to have a SMSF as “ordinary” retail super funds offer these products.
5. Don’t overlook life and disability insurance. A comprehensive wealth protection package may be available through a SMSF with more flexibility.
6. Be aware that a super fund cannot be used to accumulate assets that will provide a benefit before you retire. Doing so could see the fund lose its tax concessions
7. SMSFs offer the opportunity to invest in direct residential real estate which is an asset class popular with many. Extreme care must be taken however with liquidity (cash flow) in the fund especially approaching retirement.
8. SMSFs offer the opportunity to borrow against a small group of investments to provide the opportunity of greater investment returns in the long term. Good advice is critical in this area.
Martin LeTessier