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Is a Self Managed Super Fund Right For You?

Retirement Planning, Transition to Retirement, Wealth Accumulation

It seems that many of us have already decided that it is.

As it stands, more than 1/3 of Australia’s superannuation money is invested in Self-Managed Super Funds (SMSF).  The primary benefit of a SMSF and therefore the reasonable assumption for why the growth in SMSF is so prolific, is control.

SMSF not only allows you to invest in almost anything you could personally but it also can be very cost effective and the chosen investment strategy gives the ultimate cost control.

This affords several real potential benefits, particularly at a time that investment markets are so challenging, like they are right now, but it also poses several risks, so they are definitely not for everyone.

Below is a graph sourced from Rice Warner research that shows the typical fund balance, where SMSF can become more cost effective. It would suggest that it can range from as little as $200,000 - $500,000. 

Chart 4.4: SMSF average operating expense ratio, by fund size (2012)

What this graph clearly demonstrates is that SMSF can be considerably more expensive than alternatives when balances are low, however from experience, even when balances are larger, costs can still be higher on average and it really depends on the investment strategy employed.

With this in mind, the decision to set up a SMSF should be balanced with ‘Why’ you want to set a smsf up and particularly ‘How’ you intend to approach your investment strategy. Weighing this up against the costs associated to the strategy and any potential for outperformance the chosen strategy could derive, will then ultimately dictate how appropriate it is.

By James McFall – Founder Yield Financial Planning

"GOOD FORTUNE NEEDS GREAT PLANNING"

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GENERAL DISCLAIMER:

The content of this presentation is intended to be general information only and has been prepared without taking into account any person’s objectives, financial situation or needs. Each person should consider its appropriateness having regard to these matters or obtain relevant professional financial advice before making any financial decisions.  Examples are illustrative only. Each person should obtain any relevant professional financial, taxation and social security advice before making any financial decisions.


Tagged: Retirement Planning, Transition to Retirement, Wealth Accumulation