Understanding the Many Advantages of SMSFs
Superannuation was introduced in the early 90’s as a way for Australians to contribute to their retirements alongside the Australian Government pension and other assets.
Over the years, the compulsory superannuation guarantee has risen from the initial rate of 3% of ordinary time earnings, to current levels above 9%. But in recent years, there has been an incredible shift in the superannuation landscape.
The Rise of SMSFs
Superannuation, for much of its existence, has been run and maintained by large corporate or industry superannuation funds such as Australian Super, Host Plus and REST. However, in recent years, self managed super funds (SMSFs) have become more popular.
SMSFs are funds that have between one and four members and are managed directly by those members, rather than corporate trustees. So what are the advantages of this structure for your super?
Owning and running your own SMSF is a little like owning and running your own business. You can make decisions about the assets and mix of investments in the fund. This means that you can make decisions quickly and respond to market conditions.
For example, if you believe shares will underperform in the near term because of your knowledge of the market, you can quickly sell them and hold more in cash to protect your savings. In larger corporate and industry funds, there can be an annoying lag when you change your preferences until the managers are actually able to give effect to the change.
Studies show that differentiation and diversification can protect against losses in capital and savings. But industry super funds are barred from holding the same wide range of assets that SMSFs can hold.
For example, SMSFs can hold rare art, property, unlisted shares and even rare wine and whisky as an investment in the fund. However, there are strict rules around how SMSFs are allowed to hold these more irregular assets, and the fines can be steep if you fail to comply with them.
Professionally managed super funds offer a service, but it can be frustrating for many investors when the fees charged for those services do not seem to match the results. In times when investments are growing, people don’t question the mandatory fees that super funds levy on their accounts.
But when returns fall, super funds still must employ staff, pay rent and maintain services, which means that they charge your account regardless of the results.
Owning and running your own SMSF means that you are not charged management fees on your super, which can be an incredibly rewarding feeling.
If you would like to learn about establishing an SMSF, or would like to learn more about the rules governing SMSFs, just get in touch with us today and book an appointment at a time that suits you.