There are more than half a million Self-Managed Super Funds (SMSF) in Australia, totalling an impressive $822 billion. That’s approximately 25% of all superannuation assets in the country invested under the SMSF umbrella. This shows that Aussies are clearly keen to take greater control of their financial future.
One of the main reasons people choose the SMSF path is because it allows them to invest in a wider range of asset classes than they can with a traditional super fund. Property is a popular choice for Trustees because real estate (for the most part) has been a solid investment type for generations and has allowed thousands of Australians to boost their personal wealth for retirement.
But as all savvy investors know, it doesn’t make great financial sense to put all your financial eggs in one basket. A diverse asset portfolio with a healthy mix of risk types means you will be better placed to weather any economic storms over the years to come.
When considering investment options, particularly beyond property, it is important to keep your financial goals front of mind. Conservative assets can provide steady cash flow, while appreciating assets like stocks and commodities can help build wealth.
Typical investment for SMSF
Most of the time SMSFs start with a property plus some cash, but not much else. With SMSFs, the Trustee can invest across most asset classes, so why not diversify to get the most out of your portfolio? Other than property, SMSFs typically include shares, funds, bonds, fixed interest savings funds and exchange-traded funds.
Landen Funds Management contributory mortgage funds are a great example of an available investment class, which provides returns in the range of 8% over the life of the fund.
Why alternative investments make sense
The Trustee is required to ensure their fund has an appropriate strategy, by proving a diversification of investments across numerous asset classes the trustee reduces the concentration risk associated with potential industry-specific market events. If one asset class represents more than 90% of an SMSF, then ASIC will write to the Trustee for an explanation of why their investment strategy appears to be so one-sided. Ultimately, holding alternative investments with a more balanced approach will provide more opportunities to improve returns.
Thinking outside the typical investment box
You may also be able to invest in collectables and personal assets (to a set limit) if your SMSF’s trust deed and investment strategy allow for it. Just keep in mind, however, there are numerous restrictions. Collectables and personal use assets must not provide any present-day benefit or use for SMSF members or related parties. This means you cannot collect artwork, coins, memorabilia, wine or jewellery (among other personal assets) and keep them on display in a private residence or business owned by a related party. They also cannot be leased to an SMSF member or a related party.
The decision on where these items are kept must be documented and kept as a record. In addition, these collectable and personal use assets must be insured in the SMSF’s name within seven days of acquisition and need to be valued by a qualified independent valuer if they are transferred or sold to a related party.
These types of alternative investments must be for the benefit of members in their retirement or passed onto dependents or beneficiaries when they die. The ATO has a detailed description of the rules around collectables and personal use assets on its website. These rules seek to ensure Trustees comply with the “sole purpose test” on which the Australian superannuation system is based.
New asset classes on the SMSF scene
Since SMSFs were widely introduced to Australia in 1999, the investment landscape has changed dramatically. While property and shares are still the most common asset classes, digital assets are now among the mix.
Usually, the trust deed of an SMSF specifies any limits of the fund’s investment strategy however, if you work with an experienced fund manager, they can amend the fund accordingly to allow you to explore new asset classes, such as cryptocurrency and NFTs.
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