A self-managed super fund, better known as SMSF, is a private super fund that one manages on their own. This means you make all the investment decisions, not a fund manager. SMSFs have become popular over the years as they allow anyone with income to save for retirement by choosing which assets they would like to allocate their hard-earned money to.
Are you considering some smsf investment options? ? Let’s go over a few things that need to be right for this to happen. The first thing is understanding how investments work. This is crucial as you will set your SMSF investment strategy. The second thing is you need to have enough time to manage the fund since it can be time-intensive, and your investments will suffer if you don’t have enough time. The third thing has some legal expertise, as being a trustee of an SMSF comes with several legal obligations, such as setting the trust deed. And finally, you need a large balance since many costs are involved in setting up and managing an SMSF. Generally, you need about $200,000 for the SMSFs to be cost-effective compared to a standard super fund.
Benefits Of Setting Up A SMSFs
Compared to a standard super fund, there are many benefits to be realized by setting up your own self-managed super fund. These include:
Gain access to tax benefits
Everyone loves tax breaks, and this is what you will get by setting up your SMSF since they are taxed at a lower tax rate of 15%, the same as retail and other industry super funds. Compare this income tax from work that can get as high as 45%, and the difference is clear as light and day.
Ability to directly buy a residential property
Another benefit that makes SMSFs quite appealing to investors is the ability to buy an investment property using the fund and earn income from the rental payments as you enjoy capital gains of the property. Also, you have absolute control over which property you choose to purchase and who you would like to rent it to; the only issue is you can’t rent it out to a direct family member as this creates a conflict. That said, this is one thing that wouldn’t have been possible if you were using a standard super fund.
Include your family members and friends
SMSFs allow up to four members to join the fund; this creates room for you to add your family members or close and trusted friends where you get to manage your collective super balance together as a family.
Make fast investment decisions
Fast decision-making can make the difference between taking advantage of an available opportunity and missing it. It’s a no-brainer when decisions must be made by a single individual; they will be fast compared to when a bunch of people is involved. By managing your SMSF, you get to jump on investment opportunities as soon as you can spot them. And if market conditions change, you can adjust your asset allocation in no time.
Risks associated with SMSF
As in life, everything that has benefits carries some significant risks. This is truer when it comes to financial markets. Let us explore a few risks you should be aware of before setting up your SMSF.
Heavy fines if you don’t comply with rules
The ATO sets rules that they expect SMSFs to follow. You might face a hefty fine if your fund breaches any of the super rules. Remember the part where it was highlighted that it’s possible to buy and rent whatever property you like and determine who to rent out to? You will face fines if that happens to be a family member.
Investing on your own can be risky
Unless you are a professional investor with many years, investing on your own will have its fair share of risks. And you need the expertise to manage these risks. This means having the confidence and ability to create and manage your SMSF investment strategy. If you are not on this level, consider sticking to a regular super fund that will manage your investments.
That said, there are a few ways you can ensure you get the most out of your SMSF, such as by setting it up well from the start. This means starting with a good foundation. Hire professionals such as an accountant and legal support and solicit investment advice from experts. Also, don’t be afraid to seek outside help running the fund and, most importantly, have a clear investment strategy.