A self managed super fund (SMSF) may sound like an ideal solution for those who are looking to gain more control over their investments. After all, greater control over your investment could mean higher returns if done correctly, and this is only one of the many benefits that come along with a SMSF when compared to other super funds.
Although a SMSF may be appealing, setting one up an isn’t necessarily simple or straightforward with the overarching need to ensure that a SMSF is, in fact, the right option for you.
Benefits of a Self Managed Super Fund
Without a doubt, the most attractive benefit attached to a SMSF is the level of control you gain over your investment strategies which directly impact your wealth. For those who thrill at the possibility of increased returns on your investments with the help of some professional advice, a SMSF will sound like a match made in heaven.
This level of control allows you to strategize your investments according to your goals based on your stage in life. For example, young adults who want to build up a property portfolio may choose to do so through a SMSF as it will be more challenging to do that with personal assets. On the other hand, those who are approaching retirement may find the appeal of being able to choose the exact amount of income drawn from your SMSF followed by choosing the right income-generating investments preferable.
Given that failures in the economy are beyond control and prediction of downturns are possible, having a SMSF can help give you protection over your wealth by choosing when and what investments to buy and sell.
As you will always have control over your investments, you won’t be met with a situation where superannuation investors pull money out of your super fund forcing the sale of assets by fund managers to pay out the cash. This happened during the 2008 Global Financial Crisis, and the forced sale of super assets resulted in a negative impact on the fund value which negatively affected all investors of the fund.
Possible drawbacks of a Self Managed Super Fund
Albeit many benefits are attached to a SMSF, it may not necessarily be the best option for you based on your personal circumstances. The setting up of a SMSF is highly encouraged for those who will take an active interest in their super and not for those who won’t.
After all, with great power comes great responsibility, and having a SMSF will require active management of owning and operating your own super fund while maintaining compliance with the Australian Tax Office (ATO).
Some of your responsibilities will include:
- Lodging annual tax returns
- Being subject to an independent audit once every three years
- Having an investment strategy on paper
- Consideration of how much money you can put into the setting up of your SMSF. In the majority of cases, a start of $200,000 minimum in your SMSF is required to make your investment viable.
It is always recommended that you seek professional advice when considering setting up a SMSF and throughout its lifetime. Having a professional adviser at hand can help you fine-tune your investment strategy on top of managing all matters of compliance associated with your SMSF.
Article provided by Liston Newton Advisory