What is a SMSF Fund

Planning for retirement is prudent, and there are numerous options to choose from when it comes to funding your retirement goals. Australians are increasingly taking a more active role in planning their future by learning about the financial options available to them. When it comes to investment options, two commonly asked questions include, “What is a SMSF fund?” and “What can SMSF invest in?”. We will provide a broad synopsis to both questions and recommend consulting SMSF professionals for more detailed advice.

Looking to learn more about retirement funding? Reach out to Horizon Wealth Advisory to learn more about our retirement planning services. Call 1300 351 716 now!

What is a SMSF Fund?

A self managed superannuation fund (SMSF) is a superannuation fund that individuals can create and manage themselves. The sole purpose of the fund is to provide financial benefits to members when they retire and their beneficiaries upon a member’s death. It differs from retail, corporate, or industry funds in several key areas.

Individual Responsibility

The largest difference between SMSFs and other super funds is in determining who is responsible for managing them. SMSFs can have between 2-6 members, known as trustees, and they are the people bearing sole responsibility for taking care of the fund. This provides a great deal of flexibility in terms of investment choices as well as the ability to pursue any investment strategy the trustees wish. However, they are also fully responsible for all the outcomes of their decisions.

Risks

All trustees of the SMSF bear personal responsibility for the funds decisions regardless of who made them and irrespective of receiving professional advice. While seeking advice and counsel is always a good idea, the final decision is the sole legal responsibility of the members. This factor is important to consider as risks include:

The fund may not earn the returns expected.
When circumstances change, a loss of employment for example, members are still responsible for managing the fund.
There is no compensation for money lost due to theft or fraud.
The relationship between trustees can change which can have a negative impact on the SMSF.

Advantages

An SMSF offers a far greater degree of control for members than a traditional fund. Members have the choice of investment options outside of the typical range offered through retail and industry funds, greater flexibility around estate planning requirements, and the ability to pool the balances of members to provide economies of scale and efficiencies with investing.

Time and Knowledge

An SMSF takes time to manage effectively, trustees report spending an average of 8 hours a month on their SMSF, as well as money. Investments and records need to be researched, tracked and audited. Expenses, other than the ongoing cost of investing money into the fund, can include:

Legal advice
Accounting fees
Tax advice
Financial advice

To navigate these areas competently, trustees need to have proper knowledge in these areas if they wish their SMSF to do well. It can be exciting to learn about this area of retirement planning, but it can also be overwhelming, which is why we suggest seeking help from professional retirement advisors.

What Can SMSF Invest In?

Trustees have a wide range of investment options to choose from and will need to follow all rules and regulations when making their choices. We advise investors to remember their financial goals when considering their options as this will impact the investments they choose.

Property

Both residential and commercial property may be invested in, but several key rules need to be followed when making this type of investment. There are restrictions regarding related party purchases involving members, and when renting a business premises to or purchasing from a related party, any transactions must must be completed at market rates.

A common choice for SMSF investing, both Australian and international shares can be chosen. These can be some of the more involved investment options so it is vital to properly research them and make an informed choice.

Cash & Term Deposits

Term deposits allow investors to use a part of their superannuation balance as a fixed-rate investment over a set amount of time. Cash savings accounts with high-interest rates are flexible and give you the choice of accessing your money easily.

Fixed Income Products

Bonds typify this type of asset and are a low-risk investment. Investors can choose from corporate and government bonds; each operates the same way but government bonds are viewed as the safer option.

Physical Commodities

This class includes raw materials, gold, and silver. These types of investments are frequently seen as good hedges against inflation.

Collectibles

Coins, cars, wine, artwork, and more; collectibles can be used for diversifying a portfolio. This area of investment takes a bit more research to fully understand the market, however, so make sure to do your due diligence.

Cryptocurrencies

Another investment area requiring above average research, cryptocurrencies are a new form of asset. They are being used to diversify portfolios and are often chosen as part of a high-risk strategy.

Interested in Finding Out More about SMSFs?

Our answers to, “What is a SMSF fund?” and “What can SMSF invest in?”, have been general, and there are many details left to explore. If you wish to learn more about SMSFs and retirement financial planning get in contact with the friendly professionals at Horizon Wealth Advisory. Our team of experts can provide you with a wide variety of retirement fund options. Call us on 1300 351 716, send us an email info@horizonwa.com.au or reserve an online consultation.