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Best strategy to invest super money

Discussion in 'Superannuation, SMSF & Personal Insurance' started by kevinsmith, 6th Oct, 2007.

  1. kevinsmith

    kevinsmith Member

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    Hi,
    This year we put aside $60K into super to save bit of tax in our small biz. Could someone please advise best strategy to invest this money,
    still got 20yrs before getting retired....

    Thanks in advance.
    Kevin
     
  2. bundy1964

    bundy1964 Well-Known Member

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    Geared funds in a rising market. Bear market your losses are magnified too though.
     
  3. handyandy

    handyandy Well-Known Member

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    Hi Kevin

    Is this money going into a SMSF or a commercial super fund?

    If it is a SMSF what have you been doing with your super fund up to now?

    Cheers
     
  4. kevinsmith

    kevinsmith Member

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    Is this money going into a SMSF or a commercial super fund?
    Money is already in SMSF, me & my wife are the trustee of this fund.

    If it is a SMSF what have you been doing with your super fund up to now?
    We just established this fund in June07 before that we never put any money towards super since we established our business.
    But I have $45K lying in STA (Australian super) contributed by my employer while I was working. Eventually we would like to roll over these funds to SMSF, if any benefit.

    Thanks
    Kevin
     
  5. AsxBroker

    AsxBroker Well-Known Member

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    Hi Kev,

    I'd be beating up your accountant.

    The ATO suggests that $200k is the amount which makes SMSF cost effective. Though, like bundy said geared funds may help your fund get to that point quicker.

    Locking away $60k for some deductions does sound like an accountants answer, I'm sure alot of people in these forums could suggest other ways, such as Income Protection, Margin Lending/Borrowing to invest and Agribusiness to claim deductions which don't lock your money up for the next 20 years.

    Now the rules have change in the 07/08 year you'll get 100% up to $50,000. Rather than the annoying first $5,000 100% and then 75% after.

    Accountants love SMSFs because they get to pick up the annual auditing fees then they usually leave money sitting in bank accounts earning 1% pa.

    Why did the accountant suggest a SMSF over AustralianSuper?

    Did your accountant give you advice on doing this? Did he take into account your whole situation (eg, debts and insurance needs)? Did he give you a Statement of Advice for this SMSF (I won't be surprised when you say no).

    Depending on how much your accountant is charging you to do your auditing (calculate to an annual percentage of your $60k). If it's more than a couple of percent, it's getting expensive (ie, $1,200 is 2% cost). AustralianSuper is around 0.6% pa (Balanced option) plus about $50 per annum or so.

    If your accountant isn't going to give you advice on where to invest the SMSF money you should go to a SMSF specialist who can give you awesome advice, eg, how not to pay any CGT in SMSF, which is always good :)

    Hope this helps,

    Dan

    PS This is not a recommendation for any person to invest in SMSF, Income Protection, Borrow to Invest or Agribusiness. Speak to your FPA registered Financial Planner, Accountant or Tax Adviser before making an investment decision.
     
  6. crc_error

    crc_error The Rule of 72

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    why did you open a SMSF? Sounds like a waste of money..

    You can invest in most things via platforms like colonial first state with minimal costs.. if you have over 100k, then you can invest into their wholesale products.

    Since you are sure what to do with the money, I don't know why you wouldn't just invest into normal super funds and let them manage it.

    I would suggest seeing a proper financial planner who can properly consider your situation.

    The only reason to invest into a SMSF is if you want to manage your money directly. ie invest into direct shares, direct property, and unconventional investments like paintings, vintage cars, coins, etc.. Since it seems you don't have experience in investing, leaving it to the pro's would be better. at least till you learn a little more :)
     
  7. dinky

    dinky Member

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    Hi crc_error,

    I'd like to show just a different perspective.

    While I think SMSF is not for everyone (because of it is not cost effective until you have certain amount of $$$ there and all the related paper work to maintain it), I believe it is a good way to gain that experience in investing you mentioned in you post. If you leave it to the professionals, how are you going to gain the experience? Because of the money in Super will be there for the next 35 years (at least in my case), I think is better to make mistakes with that money than with the one I have saved/earned i.e. Invest my money in Managed Funds (and other assets) while I learn how to invest using my Super $$$.


    I read somewhere (sorry I don't remember the source) that borrowing for SMSF was going to be approved. If that's approved, it will open the door to a more diverse range of investing options and will make SMSF even more attractive for some people.

    Currently, I use a normal super fund. But when the time comes and my $$$ there are enough to make it cost effective, SMSF is an option I will consider.

    Cheers,

    Dinky
     
  8. Rob G.

    Rob G. Well-Known Member

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    There seems to be a universal hatred of SMSF's on this site.

    A SMSF is designed to be exactly that - self managed.

    The deed cost me $200 through the Taxpayers Australia.

    It costs me $200 + GST a year to get my fund audited, plus $45 (now $150) for the ATO levy.

    This is because I do my own paperwork & lodge my own tax returns and manage my own investments. The audit fee is low because I don't do any dodgy related party transactions or dubious tax driven investments, and I keep all relevant documents well sorted (not a hard thing to do).

    The cost does not change with the amount of funds under management and there are no hidden commissions or charges.

    What's more is that the compund growth on the tax sheltered investments is phenomenal.

    By judicial use of franking credits, a super fund should pay ZERO TAX on its investments instead of 15%, possibly it could be getting tax refunds.

    Now that flexibility of drawing on benefits has been added, it should be an essential part of most people's portfolio. Also, due to limits on the size of contributions it should be considered by younger people.

    What brings people undone is when they pay someone to manage their fund, which then invests in boutique managed products and your little nest egg gets eroded by layers of fees.

    If you don't want to self-manage then get into a wholesale or industry fund with an accent on LOW FEES (STA is a good one).

    Conversely, if you are a business owner you need to see if better returns can be earned by reinvesting in your business and using CGT exemptions when you sell your business. This may involve more risk and a combination of strategies may be prudent.

    I am sure your Accountant has taken into consideration your situation and overall objectives.

    Cheers,

    Rob
     
  9. crc_error

    crc_error The Rule of 72

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    Hi, So your saying that its a great way to lean to invest? You don't need to do this via a SMSF.. you can learn outside super, and once you feel your comfortable, then apply your experiance into super.

    However, what is it people are investing in which requires a SMSF? There are many quality products out there now which you can invest in using convential super funds.

    As I said, I would assume your buying stock directly, not just investing in normal managed funds, which many have super versions of them avaliable anyway.
     
  10. Rob G.

    Rob G. Well-Known Member

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    I personally use a SMSF as part of my overall hands-on strategy.

    Although it is a great way to learn how to operate a trust since there is plenty of self-help articles on the ATO website, as well as self-help groups such as Taxpayers Association & Shareholders Association which hold regular meetings.

    I treat the SMSF as an asset class, the low risk fall-back plan to get rich slowly in case my other investments fail in the long term.

    The reason to use super is because low risk investments pay low returns and are sensitive to fees. Hence a low tax (or zero tax) low fee environment is an advantage, and because of the long term objective it is not a problem having assets tied up.

    It is also a trust and so relatively safe from creditors etc.

    Since I am a property owner in my own name, and have an IP in a trust that might be realised prior to retirement, I don't hold direct property in the SMSF (duplication), along with borrowing restrictions being a problem to fund such a large cost item.

    Similarly, I don't duplicate other investments in my name and the trust - except maybe if I wish to gear the investment in my own name but I also think it is a good long term prospect for my super. Also, the attitude to gearing within a SMSF is changing over time.

    You can also transfer listed securities or business real property into an SMSF to retain beneficial ownership whilst the income & CG generated is taxed concessionally. So you can initially acquire the asset from that class negative geared in your own name, and if you wish to retain ownership when positive geared then stick it in your super (there are CGT & contribution concessions for active business assets).

    If you hold your assets long enough to reach the pension phase then the fund pays no income tax. This is in addition to distributions being tax free when you reach 60.

    Mainly though, it is just part of a wider long term strategy.

    Cheers,

    Rob
     
  11. AsxBroker

    AsxBroker Well-Known Member

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    Hi Rob,

    Could be an expensive learning curve if someone gets something wrong and then their SMSF is deemed non-complying at 46.5% tax.

    A super fund is a tax structure not an asset class, though your seeing it as your long term strategy (which super obviously is if your not retired).

    I'm not sure about the exact status of safety as before 1st July 2007, creditors were not allowed to access the pension RBL (about $1.3m). Now if creditors believe contributions were deemed to be avoiding creditors upto 5 years earlier...

    If I had a property I would have it in super and sell it after transferring the super to pension phase to ensure it is capital gains tax free. This beats small business concessions but obviously everyones situation is different.

    Once you do an in-specie transfer you lose the beneficial ownership, eg, receiving the dividends go into your super fund and not into your own personal bank account. Hence, if you have an investment property in your SRMSF you cannot enjoy it's use and if you do you are breaking the SIS sole purpose test.

    I'll stick to using a wrap account to access shares and let someone else have the hassles of being trustee, I don't have the time to do it myself. A low cost option to access shares through super is AustralianSuper which lets members invest in the top 300 stocks.

    If someone wanted to go the ABSOLUTE cheapest option I would suggest a Public Offer fund over Industry funds, eg, First State Super is cheaper than AustralianSuper.

    Dinky, I'm not quite sure how diverse for investing in different assets you want but about the only difference at the moment between a SMSF and other super funds at the moment is that a SMSF can hold business real property or an individual property, instalment warrants and instalment funds (yes, Macquarie have instalment funds).

    Most retail funds have geared investment options, eg, CFS is talked about quite a bit here. Not sure which retail fund your in at the moment but I'm sure it's not as bad as you might think.

    Just make sure you have nil contribution fee, otherwise one with nil contribution fees would be more worthwhile for you.

    Cheers,

    Dan

    PS The above general information is not investment advice. Speak to your FPA registered Financial Planner, Accountant or Tax adviser before making an investment decision.
     
  12. Rob G.

    Rob G. Well-Known Member

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    Yeah asset class was a misstatement, I meant to say vehicle for investing in this asset class.

    You sound like the typical 'guest speaker from the industry' at any SMSF seminar - their standard opening line is to warn you of the dangers of getting it wrong. The next statement is that you or an associate can help you to run the super fund, for a fee of course !!!

    Only joking Dan,

    SMSF is good for some people, and like all products it is your responsibility to educate yourself on the suitability or else (and as well ?) pay for good advice specific to your circumstances.

    Cheers,

    Rob
     
  13. DaveA

    DaveA Well-Known Member

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    Could you detail where you get this price from? Is it a discounted rate as your a accountant or is it a off the street walk in price?

    I thought the going rate for SMSF audits was about $100o pa

    If your fees are only $400 per year, it seems a SMSF could be suitable for a balance of <$50k (under 1%).

    However id imagine youd need to add the cost of professionals telling the best way to structure the SMSF.

    I too think SMSF are a good vehicle. I think they arnt given enough credit on this website though and would love to here more about them and how they operate...
     
  14. handyandy

    handyandy Well-Known Member

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    I would have to put up my hand as having a SMSF.

    As per Rob's outlined I also have never found it to be a drama. But then again I am not tempted to muddy the investments for self use motivations. It is where you sart dabbling with super fund money's for your own advantage that you risk the consequences mentioned by Dan.

    As far as our SMSF goes we invest in ASX50 shares having picked the ones which pay reasonable dividends and have also used a number of MF's to diversify a little bit. We started this fund at the same time that we started our business back in '94 and as a result have built up a nice little nest egg completely separate from our property and other investments.

    Cost wise I really couldn't tell you what our compliance/accounting costs are just for the SF as it get all mixed in with all the other accounting fees and also there are employee costs as I employ someone to help with all my paperwork (the SF and other entities).

    Getting back to the question of whether it is applicable to Kevin I would really be looking at the business situation. It is one thing to have super but to lock your money away when better investment become available (eg property when the returns are available) could potentially restrict your wealth building strategies.

    In our case it worked as we were able to contribute up to the $ age limit into the SF and then still have plenty of profits available to invest through other structures. If in your case its one or the other (rather than both) then I would try and retain control and invest independently rather than lock to much up in the SF.

    Cheers
     
  15. Rob G.

    Rob G. Well-Known Member

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    Hi Dave,

    At least about a year ago non-member price was about $250, member $200.

    The audit price is arm's length. I provide all original documents sorted and prepare the financial statements for audit so there is very little work or risk for the auditor.

    There are self-help groups who assist members with the accounting and investing tasks.

    Remember the trust deed is a VERY important document and is very difficult to vary once adopted. You can order very cheap (& possibly) suspect deeds off the internet.

    I know that Taxpayers use the same source for legal documents as my fund auditor who is also a general company auditor, so its good enough for me !! Plus their large client base & not-for-profit operation saves cost.

    Its probably cheap as it is a 'pro forma' document which of course is good for 'pro forma' clients. But given the standard regulations applying to SMSFs you don't necessarily need customised legal works of art to comply and yet also exploit the benefits.

    I am sure there are other good sources, and I am not promoting the association - I am not a member, but I am aware of their benefits from relatives. In fact I used to study their handbook as a Taxation Law student.

    There is plenty of literature on the ATO website on how to run a SMSF, written in plain English to help people along. Their attitude is to educate and assist people to do the right thing.

    Cheers,

    Rob
     
  16. kevinsmith

    kevinsmith Member

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    Thanks guys, it's really informative stuff, should have discussed here before jumping to SMSF.

    Anyhow reason why we got into SMSF was purely due to tax saving purpose. We couldn't think of any other option to save on tax because we were running out of time and situation was already in panic stage (can't blame someone except ourselves for not planning in advance)

    So damage is already done now and we are bit confused what would be the wise move now.

    As previously mentioned I still have $45K lying in STA. Is it beneficial to move SMSF money to our STA account and let them manage the whole lot and forget about the SMSF. Do you think any benefit by doing that? or is there any penalty by ATO?

    BTW We don't have any intention to put more money into super in near future.

    Cheers,
    Kevin
     
  17. AsxBroker

    AsxBroker Well-Known Member

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    Hi Kevin,

    As long as your SMSF is all in order there should be no issues with the ATO (they deal with SMSFs and SHARs not with your run-of-the-mill funds).

    Just make sure you have at least the same insurance covers when rolling over, this is something people always forget about...

    If your happy with the actual returns in the smsf that's good. If your not and you don't like the additional paperwork you can close it and roll across the funds to your other fund.

    ATO statistics say that the average lifespan of a SMSF is around 6 years, people just get frustrated with doing all the work themselves.

    Cheers,

    Dan

    This is general information not super switching advice. Before making a super switch speak to your FPA registered Financial Planner, Accountant or Tax Adviser ensuring your full situation is taken into account.
     
  18. Rob G.

    Rob G. Well-Known Member

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    Hi Kebin,

    I agree with Dan,

    If you are a hands-off person then paying someone else to individually manage your SMSF seldom makes sense if it is a small balance and you don't have great plans to contribute or involve it as part of your business strategy. (having said that, there is now some low fee services available).

    Rolling all into one fund will save duplicating expenses.

    Also, if a small balance and there is no plans for rapid contributions and fast growth, then a low fee industry fund like STA will prevent fees eroding your small capital base while you work out what you want to do long term.

    This is presuming not much further interest on your part.

    Cheers,

    Rob
     
  19. kevinsmith

    kevinsmith Member

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    Hi Rob,

    Just a quick question,
    If I rollover my funds to STA and leave SMSF account open but don't use it for few years. Do I still have to pay any fees etc?
    I might still move to smsf once I got enough funds to make it profitable.

    Thanks
    Kevin