Setting up a self-managed super fund

The philosophy of “Get Rich Slow” and all of the strategies and investments we recommend to our members are modelled off exactly what we do personally.

We actually think it is sad that we even need to say that. But unfortunately, not many people follow the advice that they give others.

At WE, one of our values is “practice what you preach” and we take this very seriously.

We want to share with you a new strategy that we are currently doing for ourselves that we will also implement for our members if it is suitable for them when the time is right.

Sarah and I are in the process of setting up a self-managed super fund (SMSF) for ourselves.

We have had the plan to do this for a number of years but we had to reach the goal we set for the combined balance of our current super accounts, and also to have the desire and opportunity to invest in an asset that we couldn’t access in our retail super funds.

This balance was determined by our goal of achieving financial security by age 45.

By having this goal we became very focused on trying to build our super balances as quickly as possible and we did this by making sure that we maximised our concessional contributions (pre-tax) of $25,000 over the last two years.

We did this while on salaries of $60,000 and $80,000, which meant that we had to make some sacrifices elsewhere, but we know the power of getting funds into an environment which is as close to a “tax haven” as you can get, early.

A lot of people have a negative view on millennials making contributions to super due to the fact that you can’t access it for a long time and because the Government can change legalisation. We are aware of these risks but we have the view that, the more you can get in at a young age (taking advantage of the very generous tax concessions and letting the power of compound interest do its work), then the better position you will be in later.

You can’t tell me that you won’t be feeling pretty good if, at age 40, you have a few million dollars in your super fund.

Even if you can’t access it for a further 30 years, you know it is there, and potentially you won’t have to focus on saving so much in other areas.

This could mean you have the flexibility to get out of that job you hate or take a risk and go into business or something similar, essentially following your dreams.

The reason we are personally ready to set up an SMSF is because when we look at our overall asset allocation, across all of our investments in different structures we would like to gain some exposure to commercial property and, due to an opportunity that arrived, it was the best strategy for us.

So, what is an SMSF?

  • The main difference is that you become the trustee of the fund. This means you have ultimate decision-making capability for your own super.
  • You can invest in assets such as residential property, commercial property and unlisted businesses that you may not normally be able to access.
  • You are able to borrow funds in your SMSF in order to increase your exposure to investments. There are limits and very strict rules on this.

Negatives

  • As you are the trustee, you take all the responsibility of the decision making. If something goes wrong you are not protected by APRA.
  • There is a lot of admin and compliance involved in managing the fund.
  • The fees involved can be quite expensive for smaller balances (hence why we’ve waited to grow our balances).
  • It takes a lot of time and decision making.
  • You may be unable to access some investments that you can access in other super funds due to not having economies of scale.

The WE view on Super and SMSF

  • It is the greatest tax advantaged environment we have access to in Australia.
  • It is going to be most people’s largest asset in the future.
  • When you are young and building, the particular super product and investments are less important than actually contributing as much as possible.
  • It should not be called Self Managed super! You can not do it yourself as it is too much responsibility and too time-consuming.
  • You should look at being more aggressive in your super investments compared to investments held in your own name. This is because you have the luxury of time and the great tax environment.

I hope this article has inspired you a bit and made you realise how great super can be. Block out all of the negative super propaganda that gets put out by the media.

When the time is right for you, we will look at whether or not this strategy is suitable for you.

The most important thing is that you get your spending under control and your personal situation into a strong position. Then look at contributing extra to your super and ultimately become completely financially free.

 

Keep on getting rich slow,

Finn


Want to find out more about SMSFs and whether it’s right for you? Our Financial Coaches LOVE helping members with their goals and working out how to attach money to them. To chat super with one of the WE team, book in a time for a Free Strategy Session.

 


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