Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 7

Putting the ‘self’ into self managed super

I am often asked, “Where should my SMSF invest?”, and the answer is always the same … it depends on what you want it to do. An SMSF can hold any allowable (ie non personal use) asset in any currency anywhere in the world, giving significant investment flexibility to your fund.

I encourage people to focus on the investment strategy, and recent changes to the law require regular reviews of an SMSF’s investment strategy. Another common question is, “Should I just set my strategy really wide so I don’t have to worry about it?”, and my answer is always NO. Investment strategies are not compliance documents, and 0 – 100% in every asset class is not an investment strategy, it’s a waste of time. It’s important to know when your fund is not performing the way you want it to, and a good investment strategy will assist you. You set the mandate and if you’re outside that range, you should know about it. Then you can decide if you have to change your strategy or if you need to change your investments. Make your fund work for you by setting a meaningful strategy and then monitor it.

The Superannuation Industry (Supervision) Act is very helpful. It might not be the most exciting read but the Act helps you through the decisions. For example, it has the ‘sole purpose section’, Section 62, which is a broad direction to start you thinking about the purpose of your super.

The Act says that super is for:

  • your retirement
  • you before retirement if you are no longer able to work
  • your family if you die.

So consider where to invest with these points in mind. First, your retirement. Work out when you want to retire and what that means to you. Then you can work backwards to determine what you need to do today to achieve it. Next, super is there if you are no longer able to work, so what if that happens tomorrow? If you don’t have enough assets in the fund, insurance will help. Another of the recent changes to super is a requirement to determine if you (or any member) need insurance. Finally, in the event of your death, where do you want your assets to go? Your family. The Act is designed with your best interests in mind.

This leads to three basic questions before working out what to invest in. What do you need? When do you need it? Who do you want it to go to on your death? The outcome of this clarity of goals leads to your investment strategy and your estate planning.

I often see wills that force all the assets out of the fund into a testamentary trust and then pay them to family members from there. This can be really tax and financially detrimental. Why take something out of a nil tax entity and put it in the hands of a marginal tax payer unless you have no other choice? Show me in your will where it says you want the Tax Office to be a beneficiary under your estate. A little planning goes a long way here.

When you have set your goals, strategy and estate plan, you need to decide exactly what to invest in. This requires a combination of professional advice and making up your own mind. An investment adviser should get to know you and the level of risk you are comfortable with. This is not static and is different for each person. What I think is low risk you might think is very risky. The key is finding a comfort level. If you lie awake at night worrying about your investments then they are too risky for you. Good advisers will help you through this.

There are traps along the way as there are so many things that an SMSF can do. You can get carried away by trying to double your assets overnight but in the real world that is like betting on red or black at the casino. Not a smart way of strategically achieving the goals you set for yourself. Your fund can borrow and this may be a good way to build your retirement assets, but you are adding to the risk. The implications of getting it wrong are significant and you must follow the rules exactly.

Everyone is different so you need to make it your fund and design it just for yourself and your dependents. That’s the importance of self in self managed super, since it’s about you and your family’s future. Get to know your fund a lot more intimately.

 

Andrew Bloore is Chief Executive Officer of SuperIQ, a leading provider of administrative services for SMSFs.

 

RELATED ARTICLES

Don’t leave your estate to clean up a super mess

Behavioural reasons why we ignore life annuities

Expect disappointment as values become stretched

banner

Most viewed in recent weeks

Who's next? Discounts on LICs force managers to pivot

The boards and managers of six high-profile LICs, frustrated by their shares trading at large discounts to asset value, have embarked on radical strategies to fix the problems. Will they work?

Four simple things to do right now

Markets have recovered in the last six months but most investors remain nervous about the economic outlook. Morningstar analysts provide four quick tips on how to navigate this uncertainty.

Three retirement checks for when you have enough

Not every retiree needs to gun for higher returns, but a conservative portfolio can court its own risks, especially with bond rates so low. But some retirees prefer to settle for a lower income.

How the age pension helps retirees cope with losses

It's often overlooked how wealthier couples can fall back on the age pension if a market loss hits their portfolio. The reassurance is never greater than in a financial (and now epidemic) crisis.

Have stock markets become a giant Ponzi scheme?

A global financial casino has been created where investors ignore realistic valuations in the low growth, high-risk environment. At some point, analysis of fundamental value will be rewarded.

Interview Series: Why it’s gold’s time to shine

With gold now on the radar of individual investors, SMSFs and institutions, here's what you need to know about the choices between gold bars, gold ETFs and even gold miners, with Jordan Eliseo. 

Latest Updates

Weekly Editorial

Welcome to Firstlinks Edition 377

The most significant change in asset allocation by Australian investors in recent years has been the move into global equities. It's been a canny trade for those who focussed on the US, especially great companies such as Apple, Microsoft, Amazon and Google. International equities experienced net inflows into ETFs of $722 million in August 2020 versus only $181 million for Australian equities. 

  • 30 September 2020
Superannuation

The elusive 12%: is superannuation at a turning point?

Such is the concern among unions and Labor about Government plans to undermine superannuation that an 'Emergency Summit' was called this week, and pioneer Bill Kelty evoked a social commitment.

Interviews

My lessons from five decades of investing

As she retires after 47 years of investing, Claudia Huntington explains the art rather than the science of the trade, the value of a great leader and culture, and the insights she gives to new colleagues.

SMSF strategies

The impact of our marriage breakdown on our SMSF

Even if a marriage ends amicably, there are complications when partners share an SMSF. You can't simply 'split' the assets on a handshake, and who takes the capital gains and what's the impact on an estate?

Investment strategies

The future is always clearest once it is in the past

It's one of those times when a case can be made that the market is expensive on some measures, but reasonable on others. Better to do what the great companies do: instead of guessing the future, they create it.

Investment strategies

Emerging markets: Should I stay or should I go?

For long-term investors, the most important factor driving returns is the price paid to acquire a stock. Emerging Markets stocks exhibit favourable valuations on both an absolute and relative basis.

Superannuation

20k now or 50k later? What’s driving decisions to withdraw super?

The amount of retirement savings withdrawn under the Superannuation Early Release Scheme has surprised many. This comprehensive survey of thousands of members of Cbus explains their motivations.

Economy

The surprising resilience of residential housing and retail

With a pandemic, a recession and high unemployment, there's every reason to expect residential property and retail sales to be collapsing. But data shows both are resilient, so what is happening?

Sponsors

Alliances

© 2020 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use.
Any general advice or class service prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, has been prepared by without reference to your objectives, financial situation or needs. Refer to our Financial Services Guide (FSG) for more information. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.