One in 10 SMSF members could be worse off
Over one million Australians have their retirement savings invested in a self-managed super fund (SMSF), and that number grows every year. There can be real upsides to running your own super but plenty of drawbacks too, and a report by the Australian Securities and Investments Commission (ASIC) reveals that one in ten SMSF members could be left shortchanged in retirement.
The figures from ASIC’s review of SMSFs highlight some worrying issues. It found 10% of SMSF members were likely to be “significantly worse off in retirement” because of poor financial advice. One in five SMSFs face serious risks because the fund doesn’t have a diversified portfolio of investments. And highlighting a key knowledge gap, 33% of SMSF members aren’t aware their fund is required by law to have a formal investment strategy in place.
Setting up a SMSF can be the right strategy for your retirement savings, but it’s critical to think the decision through and be aware of the realities. Two out of five people say running an SMSF takes up more time than they expected. One in three find it’s more expensive than they anticipated.
If the idea of having direct control of your investments is the main point of appeal of an SMSF, consider whether you have the time and money to make a success of it. There’s a lot riding on the decision – including the quality of your retirement.
According to ASIC, some people are setting up a SMSF chiefly to buy a rental property. That’s prompted a caution about 'one-stop-shops' where a financial adviser teams up with a developer or a real estate agent, whose products you may be encouraged to invest in. Property can be a solid long term investment but if you have limited funds in super you could be pinning your retirement plans on the fortunes of just one investment. Even more of a concern, ASIC found many people with a SMSF don’t realise they can’t live in the property their fund is buying.
Exposure to a variety of investments is critical to help your super navigate the highs and lows of asset markets. One way to achieve diversification is by using your SMSF to invest in managed funds with a decent track record of returns and good management. It’s a strategy that can help you build a diverse, hassle-free portfolio.
Keep an eye on the fees charged by managed funds – and what you get for your money through additional services like access to quality research. The ongoing costs of running your own super can be the make-or-break factor that determines if a SMSF is right for you or if a professionally-run super fund could be a better choice .
Put your fund to the test. Take the managed fund challenge and compare your fund today.
Frequently Asked Questions about this Article…
Managing your own SMSF can be time-consuming and more expensive than anticipated. Additionally, poor financial advice can leave you significantly worse off in retirement, and a lack of investment diversification can pose serious risks.
Diversification is crucial because it helps your super fund navigate the ups and downs of asset markets. By spreading investments across various asset classes, you reduce the risk of relying on the performance of a single investment.
Before setting up an SMSF, consider whether you have the time, money, and expertise to manage it successfully. It's important to have a formal investment strategy and be aware of the ongoing costs and responsibilities involved.
No, you cannot live in a property purchased by your SMSF. This is a common misconception, and it's important to understand the legal restrictions surrounding property investments within an SMSF.
One way to achieve diversification is by investing in managed funds with a strong track record and good management. This strategy can help you build a diverse and hassle-free portfolio.
Using a 'one-stop-shop' can be risky because financial advisers may team up with developers or real estate agents to promote specific products. This could lead to a lack of diversification and over-reliance on a single investment.
Ensure your SMSF has a formal investment strategy in place, as required by law. Regularly review your fund's compliance with legal obligations and seek professional advice if needed.
When selecting managed funds, consider the fees charged and the additional services offered, such as access to quality research. Look for funds with a solid track record of returns and good management.