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Do I have enough money for a DIY fund?

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I am thinking about packing in my super fund and starting a self-managed super fund. I am 45 years of age and have about $250,000 in my super fund but I am preparing to engage with a serious period of salary sacrifice to build up my super. I am getting more interested in shares but I am no expert and I am wondering two things.

First, do I have enough money to have a DIY fund and second do I need to have an adviser to make it work.

The way I look at this question, which I get all of the time from many people with some pretty good balances in their super funds, is I always ask them what fees they are currently paying on their super. I often argue paying around one per cent is OK but anything much over it, you better be getting great returns. Many of the industry funds have delivered good returns and their fees are often under one per cent, but I still think one per cent is a pretty fair and OK charge for what a super fund does.

Let’s look at your balance of $250,000 and factor in the fact that you will pay about $2000 for the administration that goes with your DIY fund. If you throw in extras for brokerage and other advice along the way you could fork out $3000 and so that would mean your DIY fund costs you 1.2 per cent. But if your costs were $2000, then your cost is only 0.8 per cent, which puts you in the industry fund class.

As your fund grows to say $500,000, the cost goes down to 0.4 per cent and you can see why those with big balances are leaving external funds to bring them in-house as a self-managed super fund.

But what about the expertise issue? An adviser at the beginning could help you devise an investment strategy and create a balanced portfolio between shares, fixed interest assets, property and cash. If you wanted to take it over, you could dispense with ongoing service with your adviser. However, if you’re really busy, maybe an adviser’s help could be a good idea.

On the other hand, the adviser boosts your costs, though they can help you with other aspects of your financial planning. Remember, financial advisers don’t just pick investments; they can help with strategies to pay off houses, send kids to private schools, create savings plans and help with estate planning and lots more. If you want to build up your DIY skills, newspapers are often educating investors, and we have started a special website for DIY investors called the Switzer Super Report, which you can find at www.switzersuperreport.com.au and I would love your feedback.

I think anyone can do a SMSF, but they need to be organised and good at following the rules. I know some people with a balanced profile are putting about 40 per cent of their money into term deposits at around five to six per cent and the rest is going into an ETF, which is based on the S&P/ASX 200 which gives them a very good chance of matching the index with their super investment in shares.

By the way, most fund managers don’t beat the index!

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Thursday, September 22, 2011

The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer, Roger Montgomery, Paul Rickard and Charlie Aitken the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.

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