What did I do with my SMSF investments?
Updated: Sep 27, 2020
I will get started with my SMSF trustee name - Unable to Retire Pty. Ltd. I intend to show you real examples of what I have been doing with my SMSF investments.
For most of us, wealth accumulation is about making more, and spend less that you earn. In fact, another powerful wealth accumulation tactic is by practicing effective tax strategies - legally of course. Everyone who's serious about accumulating wealth with the aim for a comfortable retirement should take the effort to meet your accountant, to devise a tax strategy that fits your financial circumstances. Making use of Self-Managed Superannuation fund is one of them. It can be a very tax effective investment vehicle, across a wide variety of asset class - including leverage to buy properties, both commercial and residential properties. In the following paragraphs I want to show you actual scenarios.
Why invest via SMSF? Simply put, the maximum tax you'll pay is 15%! A lot of people put off SMSF investment thinking it's complicated and difficult. It can be quite straight forward and meant to be easy - you just need to speak to the right accountant or advisor. And yes, like most things in financial world, it comes with risk and never suits everyone. Your accountant or advisor should explain to you the risks and responsibilities of SMSFs.
Most people would have their retirement savings - superannuation, sitting in a superannuation fund, with investment strategies dictated by fund managers. Being one of the largest industry in Australia, superannuation investment is a big business, and have huge impact on Australians. A self-managed super fund (SMSF) is a private fund that you manage yourself, unlike managed fund or any other funds in the market, your SMSF is for you to put the money you would otherwise put in a professionally managed superannuation fund. In short, SMSF is self-managed so you dictate your investment strategies.
What can you invest via SMSF?
Properties - commercial, industrial, or residential
Fund or direct shares or even index ETFs
Gold and silver
Private equity, or as exotic as cryptocurrency
I am not an accountant, so I wouldn't spell out too many technicalities over here. In plain English, I intend to talk about what investments I have done, and what are the outcomes, by showing real results.
My biggest regret. I didn't take advantage of leverage, buy an investment property (commercial or residential) via an SMSF loan. That would be my next goal.
How did I start? This is the straight forward part, perhaps because it's being done by professional accountant. You'll have a trust deed after SMSF setup. Keep it handy as you'll need it for account opening or investments.
What did I invest? At the moment my SMSF hold precious metals, fund investments, private debt and private equity. Some have been performing better than expected than some disappointing. I haven't had any listed shares or ETFs owned via SMSF but that's something worth exploring.
Am I happy with investing via SMSF? I am happy with the return, but bear in mind the return goes back into your SMSF and not available to access for spending until retirement. Investing via SMSF is a long term strategy. But you can use your SMSF to acquire some type of asset that was initially owned in your personal name, for instance gold and silver, commercial property for your business purpose, etc.
Some real examples of my investments in SMSF:
What's the challenge? You need to have at least a decent amount of superannuation before it's worth the cost of setting up and maintaining your own SMSF. I have heard instances of people doing extra contributions into their own SMSFs, or even lending to their own SMSF to acquire asset. In short, there is a certain degree of flexibility you can do with your own SMSF in relative to having your retirement savings sitting in a managed superannuation fund.
Speaking of acquiring real estate via SMSF, there are a range of loan options available in the market. There are multiple factors to consider when getting an SMSF loan to acquire real estate, every lender has slightly different niche and criteria, and rates certainly is not the only factor. There are fees, postcode restrictions on LVR (leverage ratio), post-settlement liquidity requirement, minimum cash balance requirement, etc. And you'll need a bare trust to hold the title of the asset, the nature of SMSF loan is non-recourse. Don't expect to cash out from refinance unlike what you can normally do with a typical home and investment loans. SMSF loans can be for residential or commercial properties, and they have different rates, fees and LVRs. Loan products are available via banks or non-bank lenders, and if rate is the only factor then everyone would have gone to just one lender in the market, or every lender would have offered the exact same product. So it's worth speaking to brokers who are familiar with SMSF loans. We have recently done close to 20 SMSF loans as of July 2020, an indication of SMSF investment activity in the real estate market.
Before you take the leap, speak to accountant, financial planner and mortgage broker. And it's also worth to probably engage a buyer's agent to hunt an investment based on your SMSF borrowing capacity and tax strategies, as SMSF borrowing capacity can vary a lot from your personal borrowing capacity.
Happy invest! My email firstname.lastname@example.org
Disclaimer: Speak to accountant and expert advisor for more information and clarifications.