Is a self-managed super fund right for you?

The best thing about getting rich slow is that you actually get rich. True story.

Our co-founders embarked on their Get Rich Slow journey when they met six years ago and have come quite a ways since, with a passive income stream that’s building, a self-managed super fund (SMSF) and investments in a bunch of startups.

With more and more of our earlier members having built substantial wealth now, along with us attracting new members who have given themselves a good head start, we’re starting to see much more SMSFs within the community.

Before you snooze off at the mention of the word superannuation, bare with us a minute while we go through a couple of great strategies that we’ve employed for our¬†members.

Did you know: every single strategy at WE has been tried and tested on our co-founders, Finn and Sarah. WE don’t recommend anything to our members that Sarah or Finn aren’t currently doing, or haven’t done previously.

Probably the best thing (from a psychological perspective) about having your own SMSF, is the greater sense of attachment you feel to the investments within your fund. Because you have more control and options over what you invest in (think property, shares, startup investments, artwork, etc.), you feel a stronger sense of connection with and interest toward what has always been a part of your wealth.

Of course, there can be cost savings too once your superannuation balance reaches a certain level. On the other hand, there are extra responsibilities to consider before establishing an SMSF. Like anything, there are pros and cons of establishing an SMSF and part of our role is to help you work out whether or not it is the right option for you.

On the benefits side, below are a few insights into some of the things we have implemented for our WEadvance members:

Flexible Investment options

Within an SMSF we aim to build a diversified investment strategy while taking into consideration your broader wealth. Meaning we don’t want to double up on what you’re doing externally.

Longer term plays investment-wise are great to hold within SMSF while you’re young because you’re operating over a longer investment timeframe within the superannuation environment anyway.

Examples would be property and investments in startups. We usually hold these things over the long term. It makes sense to be investing in these assets with money you won’t need anytime soon (like your superannuation).

We’d generally always maintain a cash position too. This will enable you to buy and sell investments as opportunities may arise. For most of our members who have their own SMSF, we build a diversified share portfolio with a mixture of international and Australian equities, bonds, and then look at building in property once the balance is high enough.

For some of our members who have a keen interest in startups and the entrepreneurial world, we’ve built in a portion of their SMSF balance to invest in early stage companies. Obviously, this is basically ‘gambling‘. We don’t advise specifically on the investments they make in this area. However, we do ensure that the base of their wealth pyramid is locked away. Think Maslow with the bulk of a person’s wealth secured away to cover the needs in life, a portion to cover the wants, and then a little on top that to invest in things that are much more risky. Should they completely fail they won’t impact the overall long-term financial position of our member.

Getting there

This all sounds great! But I’m sure you’re asking, how do you actually get to the point where you have enough in super to start thinking about an SMSF?

It really comes down to how far you’ve come with establishing your foundations, and how much income you are earning. For those who have enough annual income to meet their shorter-term financial goals with no trouble, we tend to recommend they maximise (or at least top up) their annual before-tax contributions into super. The limit is currently $30,000 and includes whatever your employer may be putting in. Doing with this as long as you can, as early as you can, will give you a massive head start.

Getting a head start

Humans struggle with truly understanding compound interest. I mean, we get it, but we generally don’t act on it.If we really truly got it we’d act!

To put it simply, if you put away $30,000 every year for 10 years, then stop… You’ll still be richer at 65 than your friend who starts 10 years later than you did and does it for 30 years.

That’s right, 30 YEARS!!! So, you’ve stashed a total of $300,000 (not a small sacrifice we know), but you’ve nailed it. Retiring on more than your buddy who left it 10 years later to start, who has invested a total of $930,000 by the time you guys decide to retire. I know which person I’d rather be.

The real value of a head start (entrepreneurs read this!)

So it’s pretty obvious that starting early makes sense. However, there’s another added benefit that our co-founders have taken advantage of recently. After maximising their contributions for the past few years, they recently sold their first business, WE Private. The cash injection they received meant they needed to rework their financial plan with their Coach (Rebecca is their current coach) and after covering off many of their shorter term goals, they took the opportunity to utilise some CGT rollover concessions that were available to them and make a large contribution to their SMSF. Being entrepreneurs and knowing that they will continue to take substantial risks in business, it’s serious peace of mind for them to know that they’ve got their longer term future sorted.

 

These are just a few useful tidbits on the SMSF space and how it may be beneficial to you. There’s plenty more to it (of course) and if you’re interested in taking that next step, book in a FREE Strategy Session.

Disclaimer: all information contained within this article is of a general nature.  Do not rely upon it when making financial decisions. Please consult a professional financial advisor or planner (like us!) before acting.