How to protect your superannuation.

If your super is being managed by others, you have no control over it. What happens if the market crashes again? The closer you are to retirement age the more it is likely to affect you massively. Do you really want to keep working into your 70’s? I will explain how you can secure your future with a SMSF.

To put your super into a Self-Managed Super Fund is to have full control over it. You must also have the correct mindset, and always remember that it’s not technically your money, you are merely managing it for your future self. If you had thought of it as extra money to spend, or a way to pay off your personal debts you will be better leaving it where it is not accessible.

There are many regulations around SMSF, what they can and cannot purchase, these are put in place to keep the money secure and also to scare off the weak willed and those with poor money habits. The tax office guidelines tell us that’s its not financially viable to set up a fund with less than $250 thousand dollars because of the annual reporting costs. However, it is better mentally to know that any potential future losses are under your control.

The benefits of a SMSF are that it can hold a single ( or multiple) investment property and receive a regular income from that as well as your personal contributions. Regardless of what the property market does, the income will always be there even after you retire, and so you have a guaranteed secure regular income. The property market is much less volatile than the stock market, which is where the majority of large managed funds put their clients’ money, In the GFC of 2008/2009 some of my colleagues lost 80% of their funds value over a period of a couple of weeks, a position that crippled them emotionally.

The main rules to remember are;

• The fund can own anything that can be considered an investment including property (residential or commercial), collectibles, precious metals (gold, silver), anything that is expected to grow in value, or that can generate an income.

• Any asset held by the fund cannot give any benefit to the trustees, for instance it could not buy an investment property and let you live in it, even if you were paying rent at market value. If you bought precious metals or diamonds, they must be stored at a 3^rd party safe location.  If you bought a painting by Picasso, you couldn’t hang it in your home, you would need to rent it for display in an art gallery etc.

• SMSF is allowed to hold a mortgage on an investment property for no more than 50% of the purchase price but banks are becoming much more cautious about this set up and its increasingly difficult to attain. It would be easier to hold half yourself, or join up with another super fund to purchase a property outright.

• The cost of running the funds are around $3-4,000 per year. More if you are playing with the stock market yourself and there are a lot of transactions to check through. the funds need to be checked each year by an auditor for compliance, before the accountant is able to do the tax return. Both are considerably cheaper if you have done a good job of keeping the records in order, its best to use some kind of accounting package if there are a lot of transactions gong on (such as rental income or share trading)

• SMSF pays only 15% tax on inputs, so for the high income earners it’s a great way to put in voluntary contributions as a way to save for the future and reduce your immediate tax load, but for independent advice on your personal circumstances you need to speak to a good accountant who is well versed in small business and SMSF.

• The same rules apply for early release of money as for managed funds, just because you are in charge doesn’t mean you can take money when you want. If the fund does not comply with tax regulations the tax office has the power to close it down and transfer the cash in the bank accounts into a managed fund of its choice so you must be mindful of this, if this is your main reason for transferring your funds.

What I personally have done has increased the paper balance from a measly $37,000 to over $240,000 in 18 months, this is partly because I had a few years of financial learning behind me which included some expensive mistakes with personal attempts at investing. But I learned some important lessons and had some excellent advice, (from people doing it themselves NOT financial advisors) and also had the belief in what I was about to do. The one big lesson I learned was that wealthy or successful people do not use financial advisors, they take their advice from people who are successfully investing their own money in certain projects, kind of monkey see, monkey do.

Why don’t the wealthy use financial advisors- well because they have much more knowledge, they have a vested interest to make sure the money grows, and finally, financial advisors work for a wage plus commission, they will always tell you to ‘invest’ in the thing with the most return for them, they are not there to grow your portfolio, but their own.

What’s good enough for those wealthy friends was good enough for me, and so most of my portfolio is now held in rural property, and precious metals with some remaining in bitcoin and altcoins. As I am not a qualified financial person I am not telling you to do this, but simply telling you how I managed to supposedly defy the odds and increase my portfolio by 648% which is the opposite of what the main funds were doing over the same timeframe. Rural property gives returns between 4 and 10 times higher than suburban properties, and the tenants are much less likely to want you to fix every little thing, they are usually much more able to fix leaky taps etc themselves.

You can check out the current regulations on SMSF here

https://www.ato.gov.au/Super/Self-managed-super-funds/

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Prouse Family Accountants

Good luck with everything and keep taking back control of your world in every aspect of life.