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SMSFs: Why Are They So Popular?

Why Are SMSFs So Popular?

SMSFs are fast becoming Australia’s favourite way to secure their financial future.

Aussies come from a long line of rebellious folk; Cook, Kelly and The Packers all rebelled in some way to get where they needed to go. It’s in our very nature as Aussies to buck the trend.

You’ve heard about it on the news, and some of your family and friends might have one. When you talk to these people, a lot of them will be quick to tell you that their SMSF gives them a better return than other Super Funds and that it’s the best choice for your future.

It all depends on your personal circumstances, however.

(Psst, here’s some information about what an SMSF actually is)

More and more Aussies are turning to SMSFs and away from industry super funds for investment. But why?

It’s All About Financial Freedom.

More Control

Nowadays, it seems like the harder you work, the less you get out. You’re taxed up to your neck and hemmed in by some of life’s other responsibilities.

So, when the time comes for you to retire, you’ll want your Super Fund – the biggest investment of your life – to give you the control over what your money does and where it goes.

An SMSF does just that (It’s even in the name!)

If you choose to use a lower-cost provider, such an industry super fund, instead you are setting limitations on what assets you can invest in and which brokers you can use.

One of the biggest reasons people choose to move to a more flexible SMSF structure is a greater level of control they gain over the growth and returns on their investment.

Investment Flexibility

With an SMSF, members are given the flexibility to run a mixture of accumulation and pension accounts. Your investments can take the shape of your passions and help your money grow.

Unlike normal super funds, there are many ways of investing differently:

  • SMSFs can hold direct property;
  • Unlisted shares;
  • Artworks;
  • And exotic or boutique investments.

An SMSF’s board of trustees can change their approach to better suit any particular goal or investment strategy. This allows SMSFs to optimise any tax benefits they may be entitled to and lets them take advantage of market opportunities when and where they may arise.

Read our success stories: SMSFs and Retirement Planning

Getting this right as quickly as possible is essential to achieving real financial freedom (and buying that house on the river).

This flexibility, however, does come with a few caveats:

  1. Investment without research is really just gambling.
  2. No government protection from fraud. (No, he isn’t really a Nigerian Prince).
  3. Tax Laws: We all have to follow them, so hit the books!
  4. An SMSF may be more expensive to run if you don’t have the right advice or expertise.

Control Your Taxation

With SMSFs, it’s a good idea to plan out the timing of pensions and building investment strategies to take advantage of the concessional tax treatment.

You’ll be able to reduce your tax and for most retirement phase clients, refunds can be claimed from the ATO for any excess credits.

You’ve also got some flexibility when it comes to dealing with taxable liabilities for your fund, as this fund only has one single tax return.

Although, there may be up to four different members for the fund and each can have numerous pension accounts.

Look, it’s all a bit dry and complicated, we know. But at the end of the day, it means you pay less tax and have more to play with.

If you aren’t sure about anything you’ve read here, seek advice from a qualified SMSF Adviser.

Also, here’s some important information about Tax Scams.

Read our success stories: SMSFs and Tax-Free Income

Investment Transparency

Have transparency on fees being charged to your SMSF is essential when it comes to maximising the return on your investment.

Monitoring and controlling the fund’s transactions is done directly by the trustees, which gives you a better view of the fund’s investments and their performance at any time.

Investment Pooling

Family members may be able to pool their superannuation in the one SMSF, which may invest in certain assets for the benefit of the family business.

This may include business property and some direct and indirect investments in family business entities.

Proper Estate Planning

Estate planning is probably one of the trickier areas in superannuation because you are trying to control what happens to your super benefits after you die.

For many Australians, deciding what happens to your Super benefits when you’re alive can be challenging enough. Consulting a qualified Financial Planner in this instance is highly advised

The benefits, however, may outweigh the risks for you. For example, the benefits from your super don’t have the same payment restrictions as they would if paid from someone’s estate.

There is no requirement to wait until a court delivers a probate (A decision on the Last Will of an individual). This saves you time, as well as hefty legal costs.

Read our success stories: SMSF Property Investment

Borrowing Money

Up until 2007, SMSFs were unable to borrow money to purchase an investment. Superannuation laws now allow an SMSF to borrow money in order to invest but must follow very strict laws.

SMSFs can borrow money to buy any type of asset permitted by the superannuation law.

While the rules do not restrict the type of asset that can be purchased, due to Limited Recourse Borrowing Arrangements (LRBAs), SMSFs have primarily needed to borrow money in order to invest in property.

Growing in popularity

SMSFs make up the largest segment of the $2.3 trillion worth of investments by Aussies. This decade alone saw SMSF assets triple to around $674.7 billion –30% of all superannuation assets within Australia.

This growth is expected to carry on at a rate of 5% per annum for the foreseeable future.

The age-range data for SMSFs show an increasing number of younger people investing this way. 43% of new trustees for the December quarter of 2016 were under the age of 45.

This age segment is steadily increasing year on year as the population ages. The classic image of a confused 45-year-old behind a computer is outdated in 2018.

With this generation proving more tech-savvy, engaged and clued up about their money than any before it.

Old People GIF - Find & Share on GIPHY

Do you dream of sipping cocktails on a tropical beach (with money in the bank) in the next 10, 20 or 30 years? How does your partner feel about it?

There are many questions just like this which you need to answer before you make a decision.

Consideration is one of the most difficult stages of your journey, but with the right advice and expertise, you’ll be on your way to the good life in no time.

Secure your future with this FREE 10-page SMSF Guide.