No SMSF for this active investor (Part 1)

by Greg Hoffman

As a keen value investor, it may surprise you that I don't have a self-managed superannuation fund (SMSF). Yet I still actively manage my super.

I'll get to the how in a moment but first a word on the why.

Super Advisor colleague Richard Livingston has an SMSF and we're both happy with our differing situations. The main reason is that Richard's balance is significantly larger than mine.

For those with smaller balances (mine is around the $100,000 mark), an SMSF is costly to run. Not to mention the hassle and paperwork. But I'd probably go through the pain if the choice were between that and a 'traditional' fund run by the likes of AMP (which I had the misfortune of being dumped into by an employer more than a decade ago).

Yet, for once, recent 'innovations' in the financial industry have been to the benefit of consumers. And a new breed of attractive superannuation products has emerged in recent years. And these already attractive offerings are not only proliferating but further improving.

The one I use is Australian Super. But others include Sunsuper and ING Living Super which have their own attractions.

Australian Super takes care of all my paperwork and admin for the lowly fee of $1.50 per week. That works out to less than 0.1% per year and will fall as my balance grows.

I then pay an extra $180 annually to access 'Member Direct'. This option allows me to invest up to 80% of my fund in shares within the ASX300 index and almost two dozen Exchange Traded Funds (up to 20% in any single share or fund).

Currently around 65% of my fund is invested through this option in various shares, about 28% in the international shares option and the remainder in cash.

The fees on the international shares option worked out at 1.02% last financial year. Assuming the same rate and that my investment stays static, I'll be looking at a yearly fee of around $280 for this portion of my portfolio.

Let's add in, say, $100 for brokerage over the year (I don't churn my portfolio much) and total all of the fees up:

That's an all-in annual cost of less than 0.65%, including an investment management fee on the portion of my fund invested through the International Shares option (which produced a 23.83% return for the year after fees, including a performance fee).

For me, this combination of low-hassle, low-cost and decent flexibility of investment choices is hard to beat. But there are some downsides which I'll explore in my next post. I'll also discuss the triggers that will cause me to consider transitioning to an SMSF.