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To self-manage or not to self-manage

I am 35 years of age and not impressed with my super fund and was thinking about setting up a self-managed super fund. I am pretty organised but I am no investment expert. Do you think it is a good idea or should I just look for a better fund, such a cheaper industry fund?

I do like self-managed super funds (SMSFs) for organised people who want to become their own fund manager. There are costs, rules and the chance of making losses, so you have to be the right person. The Australian Tax Office becomes your super boss. They police the rules and I recommend you go to their website, which explains a lot about SMSFs.

You need to get an accountant to set it up and it could cost over $2000 and it could cost you that again each year for accounting services and audits. I had one client who traded all of the time and his bill topped $5000. Basically the more complicated you are and the more you buy and sell shares as well as other assets, the more the cost. You will end up with broker costs but using online discount brokers can contain these. 

There are a whole lot of rules you simply have to keep as making a mistake could disqualify your fund, which could mean your tax rate goes from 15 per cent to 45 per cent, plus there could be penalties! The rules include: the sole purpose test, in-house assets rules, segregation of assets, assets must be held in a trust for members, the investment strategy needs to be drafted and complied with, you cannot use your money (say, for business cash flow reasons), there are borrowing restrictions, contribution rules, returns must be filed on time and then there are Capital Gains Tax rules to be understood. 

You will have to develop an investment strategy, making sure your portfolio reflects your attitude to risk. You might need a broker or an adviser to get you confident with your tasks and this can also bring costs. You should do your homework and calculate the cost and then compare it to an industry super fund to see if the cost and the time are worth it. Remember if you have $200,000 in your fund and the cost is $2000 a year, the cost of running your fund is one per cent but if you pay more and you can’t match the returns of the professionals running the industry or retail funds of the financial institutions, then you should think the idea through again.

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: Tuesday, May 18, 2010

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