- Take control of your super by having an investment strategy and sticking to it.
- SMSFs can be helpful for business owners, or those with more complex financial situations.
- You can get more involved in actively investing your super, even if you don’t have an SMSF.
There’s a bit of swagger about having a Self Managed Super Fund (SMSF). It speaks to how you handle money and your future – ‘I’ve got an SMSF – let no-one doubt I’m in full control of my destiny.’
There are undoubtedly benefits to actually having one, and SMSF bragging rights at BBQs are right up there for some. But it’s important to look beyond the SMSF as a status symbol, and understand that the control you’re crowing about can come at a price – your time (also your money but we’ll get to that later).
What you really need to control
We’ll often see people flocking into SMSFs when there’s been a market downturn. Superfund returns take the hit too and everyone wants out, thinking they could have done better, there’s no way I wouldn’t have seen that coming etc. At a more basic level, people mistakenly blame the product wrapper, an industry or retail super fund for example, for what has happened to the underlying assets, and feel better about using a different wrapper – even if the underlying assets are the same.
This points to the big problem with the idea of exercising more control over your super. The impact of the GFC on investments was so huge, it’s still fresh in our minds a decade later. One of many things we can learn from that last significant fall in the markets is that having the discipline to do nothing when disaster strikes is how you reach investment goals. If you’d cashed out for a year at the bottom of the GFC, you’d have 30% less money today and 50% less if you stayed in cash.
Chopping and changing to get the best return is a risky way to go about retiring rich, which is why you’re in this super game in the first place. Having an SMSF can become a distraction, channelling a huge amount of time and energy into investment decisions and admin. While this can impact your retirement outcome, it’s not as important as setting the overall strategy and focusing on how much to contribute – including how to budget for that amount, without living like a hermit in a cave until you’re ready to retire.
Are you really ready for this?
Joining the cult of the SMSF is generally more compelling for business owners. If you own assets and property through a business or your tax affairs are less than straightforward, this is where SMSFs can really come into their own. When an accountant says you’ll get more bang for your buck from an SMSF, it’s typically more about structuring and tax efficiency than investment outcomes.
Before making the move, it’s worth asking the question of whether potential tax benefits are also available in your current fund. Franking credits, for example, are claimed by super funds and SMSFs alike.
Tax is far from a turn on for most of us. And that’s why having an SMSF can become a drag if you’re really not that interested in anything except being a big shot investor with your super. There’s plenty of information available on how to run one, but when it comes to making all those tricky decisions, are you really up for it? If you’re in a demanding job, climbing the career ladder as part of your wealth building strategy, the opportunity cost of spending your time on this could be significant.
Stick to the sexy stuff: investment choices
Paying for services from accountants, solicitors, property and investment managers can certainly save you from being bored beyond belief by the workings of your SMSF. These professionals know them inside out and can tell you all about the benefits. But some of these benefits aren’t unique to SMSFs. Having more control over your investments is a benefit, for example, but you can very easily achieve that with your super fund.
The best of the funds can give you ample opportunity to show off your investment moves. Super funds have to compete with each other – and SMSFs – for your dollars, so there’s been some very helpful oneupmanship in recent years. Take a look under the hood of a few leading funds and you’ll find they’re offering more investment options and better reporting and visibility of the underlying investments. And they’ll take care of all the compliance, tax and accounting you’d have to juggle with an SMSF.
Sticking with your super fund is also about the insurance piece. Not quite as sexy as investing I’ll admit, but insurance within your super can be very attractive. Finding the same cover and value outside of super is tough and staying put can potentially save you thousands of dollars over your lifetime. So it should be part of your cost-comparison if you’re considering jumping ship and getting on board with an SMSF.
Set your course and follow it
Cost can be a topic that divides fans and detractors of SMSFs. Some with a larger amount to invest would say choosing an SMSF is about reducing costs. But lower costs don’t necessarily mean better value. The value you’re looking for is in the whole service proposition, and the final destination – a retirement that’s secure thanks to your super balance.
Whether you choose a super fund or an SMSF for your journey, you need to set the strategy and someone needs to carry it out. You just might not have the capacity to do both. And if there’s a choice to be made, should you really be spinning your wheels on the detail, or thinking about the longer game?
— Anthony Serhan is the Managing Director, Research Strategy, Asia-Pacific at Morningstar.
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