The self managed superannuation fund sector has the largest proportion of Australia’s superannuation assets at $418.5 billion*, and is still going strong. Just make sure you have the right tools to maximise your money.
Starting a self managed superannuation fund (SMSF) is an increasingly popular option in today’s economic environment, particularly among the baby boomer generation. As many large super funds reported negative returns for investors during the global financial crisis (GFC) due to falling markets, many people have started to conclude—rightly or wrongly—that they can do a better job themselves.
The popularity of SMSFs, however, started well before the GFC and isn’t slowing down. At 30 June 2011 there were more than 456,000 registered SMSFs in Australia. These funds held the largest proportion of super assets in Australia, accounting for 31.2 percent*.
Australian Unity Investments’ general manager of retail, Cameron Dickman, says, “Before the GFC, the usual profile of an SMSF trustee was someone who genuinely enjoyed playing the stock market. Career often plays a part in this too—for example, doctors are more likely to invest in biotechs and mining engineers in commodity-related companies, because of their own interest in the sector.
“During the GFC, this profile changed slightly. Many people started realising super is a very significant component of retirement, and felt that putting their money into someone else’s hands wasn’t their first preference.”
A changing landscape
Australia is only now approaching the first generation that has ever had full investment in super (as compulsory super was only introduced in 1992), and that means a shifting profile in SMSFs that is set to change the industry again.
“With the various fees involved in running an SMSF, it doesn’t make sense below a certain value,” explains Cameron. “You have to make more than your fees or it’s not worth it.”
In future people will reach this ‘value level’ earlier, as the length of time they have spent in super – and possibly the required contribution – will have increased. The breadth and depth of the market will continue to grow because there will be more and more people who have been contributing to super all their working life.
Proceed with caution
As the baby boomer generation (the highest users of SMSFs) moves towards retirement, Cameron predicts a new range of issues will start to get more attention.
“As we age, it becomes more difficult for some people to read the investment markets like they used to, and we will see some SMSF trustees run out of money despite their best efforts.
“That’s why we think there will be a trend of unwinding SMSFs later in life. Many people may want to move back into the safety of a pensionfunding
mechanism that allows them to know that as they reach 80 or 90, they will be taken care of financially. You don’t want to be in charge of your income if you don’t feel up to the task anymore.”
There are other risks associated with having an SMSF—you need to have an investment strategy in place, manage to that strategy if you’re not employing someone to help in the advice area, and prove you have followed that strategy for audit purposes. Many SMSF trustees get caught out when they incorrectly use a credit card or cheque book from their super fund. There can be severe taxation penalties when breaches occur, so this is something to be particularly careful of.
One for the experts
The majority of people who are trustees of an SMSF still do have a financial adviser or accountant helping them manage their fund, as there are a number of investment options they can’t directly access themselves.
“Having a strategy that only involves one type of investment, such as term deposits or real estate assets, can work at any one time,” says Cameron.
“However, taking this approach permanently means you may start to miss out on other good opportunities.”
Many people also use individual fund managers for investments that are more difficult to manage.
“For example, the size and diversity of the Australian microcap sector makes it challenging for investors to navigate, and the work involved in researching companies requires teams of experienced people. Our joint venture partner Acorn Capital, investment manager of the Acorn Capital Microcap Trust, uses its professional expertise in that sector to do all the hard work for you. Or those who want to invest in a liquid property trust can consider the Australian Unity Healthcare Property Trust—most people can’t afford to buy a hospital on their own!” says Cameron.
For more information on the Acorn Capital Microcap Trust or the Australian Unity Healthcare Property Trust, visit www.australianunityinvestments.com.au or call 13 29 39.
Important information
The investment products referred to in this article are issued by Australian Unity Funds Management Limited ABN 60 071 497 115, AFSL 234454. This information is intended only to provide a broad summary of the financial products and is not based on the financial objectives, situation or needs of any particular investor. In deciding whether to acquire, hold or dispose of the products, you should refer to a current copy of the Product Disclosure Statement (PDS) and consider whether the products are appropriate for you. A copy of the PDSs can be obtained by visiting australianunityinvestments.com.au or calling 13 29 39. The information provided here was current at the time of publication only, and we recommend you access our website for further information.
* Source: APRA Quarterly Superannuation Performance report, 30 June 2011
