All my friends are starting Self-Managed Super Funds - I have $180,000 in my super fund and am wondering whether this is enough? If so, what is involved in the set up and what are my new responsibilities?
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I don’t believe there is a right or wrong answer to your question. Simply put, SMSF’s can be a great tool for the right person, but a SMSF alone is not going to be the one item to make or break your wealth.
If you speak to advisers about their most successful clients, you will find that building wealth is not about picking the next stock, timing the market or finding the best investment vehicle. It is about developing a plan with clear strategies and making rational financial decisions in order to give you the best chance of achieving your goals.
Every day I sit with clients who face this same question and for me it comes down to the following 3 points.
What is it that a SMSF can offer for you that an alternative fund (e.g. industry or retail) cannot offer?
For some this maybe that you want to invest in direct property, commercial business premises, day trade direct shares, invest in art work or simply greater feeling of control.
Don’t only ask this question now, but also think – once I am retired, would I still want to be actively involved?
Often clients are surprised by their own responses as well as the alternatives to SMSF’s such as modern retail funds (that allow for more client control without the hassles and responsibilities of DIY SMSF).
2. Account Balance – how much do I need for a SMSF to be viable?
In regards to your balance, you are on the cusp of where a SMSF may be worth considering. ASIC suggests that balances similar to yours can be cost competitive, provided you perform some of the administration tasks yourself. Depending on what you want to do & the professional services you want to outsource, costs can vary significantly.
It is important to compare this cost with alternatives to evaluate if the extra cost (or cost savings) are worthwhile? (e.g. SMSF compared to existing retail / industry fund).
You will generally find that the higher your balance, the more cost effective a SMSF could become.
It’s not only important to look at your balance, but also that of your partner, or whomever you are considering establishing a fund with – keeping in mind there is a max of four members.
3. Your awareness & skills
It is not only important to consider your own awareness, skills and desire to manage your own super but you must also assess the other members? Further, if you’re the dominant partner, who would look after the fund if something was to happen to you?
Starting your own fund, and becoming a SMSF trustee means that you are legally responsible for all your SMSF decisions – from administration, ensuring accounts & auditing are completed, complying with ever changing legislation, creating and adhering to investment strategy etc.
In regards to setting up a SMSF, the process can be relatively straight forward. Unfortunately, there are ‘professionals’ out there that over charge and under deliver on both set up and ongoing services to assist SMSF trustees so ensure you look around.
I highly suggest you seek advice from a qualified adviser. Most decent advisers and accountants offer a complimentary initial meeting. I guarantee this will help you get a better idea on SMSF’s and how it may fit or may not fit with your broader financial situation.
I wish you all the best with your financial endeavours!
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