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News Bulletin : ADA News Bulletin March 2011
40 MARCH 2011 Compiled by Michael Lannon investment insight Self-managed super funds (SMSF) or DIY super funds are perhaps the fastest growing sector of the superannuation market. There are now more than 428,000 SMSF’s run by 815,000 trustees controlling assets of almost $400 billion or almost a third of the entire superannuation market. Part of the reason for this growth is a growing level of dissatisfaction with financial advisers and mainstream superannuation funds that have provided lacklustre returns since the GFC. However, running a SMSF has both advantages and disadvantages. In this month’s article I will look at SMSF’s and hopefully assist you in determining whether or not running your own super fund is the correct choice for you. Table 1 outlines some of the pros and cons of DIY super funds. Table 1 PRO CON • Full control of super and where money is invested • More investment options – flexibility • Responsibility as trustee • Potentially lower annual fees • Ability to borrow for certain assets • Need to understand complex super legislation • Need to decide what assets to use and have a written strategy • Harsh ATO penalties for violations – non compliance • Not cost effective for funds with less than $250,000 – 300,000 • Gearing in super may not be appropriate I have always been a supporter of DIY super for the control and flexibility it offers. With a self-managed super fund you get full control of your super and can invest the money in a range of assets. A SMSF has a wide choice of investments for your retirement money including, shares, managed funds, property trusts, fixed interest, direct property and cash as well as collectibles (art) and physical commodities (gold bars). The added benefit of transparency makes it easy to analyse which assets in your portfolio are performing and which ones are underperforming. However, there are also many pitfalls for investors who do not take their role as trustee seriously. WHAT InvESTMEnTS DO SMSf’S ACTUALLY USE? Last year, the ATO published statistics that showed the most popular assets classes for DIY super funds were direct shares (30%); cash and term deposits (28%); listed and unlisted trusts and managed funds (20%); and direct property (15%). Funds with assets of less than $500,000 had a lower allocation to direct property as would be expected given the significant amount of capital required for direct property purchases. The recent Cooper Review of the superannuation system suggested tightening the rules around alternative assets like collectibles so that members cannot enjoy their investments personally and artwork must be stored in a commercial facility. Since the rules concerning borrowing within super have been clarified the media is rife with advertisements advocating buying an investment property with a SMSF. However, given the reductions in contribution limits and the cost and complexity of ‘buying property’ through a super fund investors are strongly advised to carefully scrutinise this option before committing a large portion of retirement assets to a single asset class. Also, given the current valuations of Australian property, the sector will probably go through a consolidation phase. In reality the majority of SMSF’s use direct shares, managed funds and cash as their primary assets classes. is a Diy super fund the right choice? nOt FOr eVeryOne! www.2020directinvest.com.au/ada | 1800 352 021 100% entry fee rebate on managed funds
ADA News Bulletin February 2011
ADA News Bulletin April 2011