SMSFs are a growth industry, but it can be a thicket in wait
I fielded a comment last weekend while giving a talk at the Trading and Investing Seminars and Expo in Sydney. "Do we have to be able to trade foreign exchange to run a self-managed super fund?"
Scary. Clearly a plethora of products are confusing the investment landscape and it is no surprise from the level of marketing that newbie SMSF investors would think that trading foreign exchange is "normal".
The good news is that despite all the products and marketing suggesting you bet on stocks, markets and foreign exchange, the sharemarket investors have always relied on is still quietly ploughing along underneath there somewhere and the first job of a new SMSF trustee is not to get distracted or, to put it politely, not to mess it up.
Basically, your job as a new SMSF trustee boils down to two things: administration and investment. The industry is getting pretty competitive and, to the annoyance of your accountant, there are now some cheap and efficient administration platforms available, costs are coming down and with it the threshold size of fund at which it becomes financially viable to "take control". So much so that the SMSF industry will remain a high-growth industry for some decades. The SuperGuarantee alone ensures that.
SMSFs own a third of the $1.576 trillion in superannuation assets, although just 3.8 per cent of the population is running the 506,000 SMSFs and the prediction is that the number will double by 2020 and that total superannuation assets will quintuple by 2030.
With technology "taking control" it is becoming more popular and manageable by the day. Now, throw in the baby boomers retiring and you have a veritable boom industry.
But there's a bit more to the administration than simply giving it to a platform, of course. At the outset, you should be making a few decisions about how much to contribute, understanding how much you can contribute, what stage of the process you are in and what the tax implications are.
It's an ever-moving feast, but shifting tax details aside, there is a drive on to stabilise everything and it seems to be crystallising. It's a sharp learning curve but with a bit of work, reading and advice you'll become comfortable with the concepts pretty quickly.
Despite that homework, it's probably still best you chat to a superannuation specialist at least once, preferably at the outset, just to set the structure and elevate your understanding of where you are, where you're going and why. These days you should be able to arrange that on a fee-for-service basis without buying a lot of product and tying yourself to a financial adviser for the rest of your life. Ask around, get a recommendation.
After that, welcome to the world of amateur funds management, which might seem daunting and complicated, but let's boil it down to three basic steps.
The first is deciding whether you have the interest, skills, passion and knowledge to do it yourself. If not, you're going to be adding a lot more risk through your amateur disinterest than you may realise and should be seeking a trustworthy adviser to explain your investment options and possibly do it for you.
Someone's got to be on the ball. Not quite the point of "taking control", but you'll still have a lot more input that the 96.2 per cent of people who tick the "default fund" option when they sign up to an employer, although these days even those allow you some flexibility in what areas you invest in.
For those who do want to take on the investment process, there are two more steps. The first is deciding what asset classes to invest in. You can call it asset allocation if you want to be fancy but really it's just deciding what percentages of your nest egg are invested in what. There are probably a few more asset classes you can invest in than you think. They include cash, fixed interest, securities (shares), direct property (possibly geared), FX, bullion, derivatives and some other asset classes such as coins and art. Your percentages will depend on your stage of life as well as which asset classes you are comfortable with or have some interest in and possibly some expertise in managing. Having allocated your percentages, the third step is to get on and invest. We'll cover some of the basics next week.