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Self-managed super funds: pros and cons

What is a self-managed super fund (SMSF)?

Often referred to as a DIY super fund and, as the name suggests, a self-managed super fund is a fund that you manage yourself, for the purpose of providing retirement benefits to its members.

SMSFs have become increasingly popular in Australia in recent years and come with a range of pros and cons. It can be very appealing to have this level of control over your super fund, but it can also come with a lot of work and a high level of risk.

 

Benefits of an SMSF

There are a number of benefits of a self-managed super fund. Being a trustee puts you in control over the investment strategy and gives you greater choice and flexibility in the types of assets you invest in, to better suit your needs.

An SMSF can open up a range of additional investing options, including commercial or residential property, gold or other commodities, collectables, managed portfolios or unlisted shares.

Transparency is one of the most sought after benefits of an SMSF, enabling you to better understand where your money is invested. This can offer some protection against market downturns as assets are in your control and can be quickly sold or purchased.

One often-overlooked advantage of SMSF is that they can provide greater flexibility for estate planning. In addition, if you’re approaching retirement and have a desire for steady income, specific self-managed investment strategies can be matched to achieve this goal.

 

Disadvantages of an SMSF

Running an SMSF can be time-consuming and costly and must adhere to the duties, responsibilities and obligations that are set out by the Australian Taxation Office.

There are strict laws and regulations that govern SMSFs and as the trustee of your fund, you’re held responsible for complying with superannuation and taxation laws. There are also requirements for annual tax returns, independent auditing, and maintaining a documented investment strategy.

Another disadvantage of an SMSF is there’s no set and forget strategy. A trustee is personally responsible for the fund and must continue to research investment strategies and have a good knowledge of fundamental investment principles.

 

Making the decision to manage your own super

One major consideration when deciding if an SMSF is right for you is how much money you have to set up the fund.

Many experts suggest you should have a super balance of at least $200,000 for it to be viable.

On top of the financial investment, an SMSF typically requires trustees to spend on average eight hours a month managing their funds.

This is time spent researching investments and keeping accurate records of all paperwork and accounting work, all of which is to be approved by an SMSF auditor.

With all this in mind, speaking to an expert financial advisor at Simmons Livingstone & Associates can help you determine if an SMSF is right for you, or whether there are better options for your superannuation.

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