Finding ways to responsibly invest your money is something that everyone should take part in it. While there are many ways to do it, recent years have seen an interest spike in something called self managed super funds (SMSF). Today, we are going to take a look at what exactly an SMSF is as well as how it works, and to help you decide whether or not it’s the right investment decision for you.
What exactly is a Self Managed Super Fund?
An SMSF is a type of fund that has up to four members, all of which are trustees, and it provides them with a way to save money for their retirements. It’s regulated by the Australian Taxation Office and its members are fully responsible for any of the decision the fund makes as well as for the compliance with the laws that regulate how an SMSF is operated. The great thing about this type of fund is that it allows the people or person in charge of the fund to invest their money in whatever way they see fit, effectively tailoring the fund to meet their individual needs.
How does a Self Managed Super Fund Work?
All SMSF investments are made in the name of the fund and are controlled by the trustees. There are two ways SMSFs can be structured. They can either have a corporate trustee where a single company acts as the trustee and the other members as directors, or it can have individual trustees where all of the members are trustees. Once you’ve set up an SMSF, you are going to have to run it like a proper fund. This will include coming up with investment strategies, researching potential investments as well as keeping a comprehensive record of what you are doing with the money. It’s also important to add that you are personally liable for all the decisions made by the fund, even if you get help from a professional or another member of your fund makes the decision.
How do you start?
The easiest way to get started is to look for an online agency that offers reliable self managed super fund setup services which will allow you to eliminate most of the hassle that usually goes with starting an SMSF. In most cases, the professionals in the agency will do all the difficult work and you will only be left with two jobs. Namely, you will have to choose your trustee structure and decide who the members of your fund are going to be. Finally, it would be a smart move to have an exit strategy prepared in advance which will help reduce the impact of unexpected events that can occur. With that, you should be good to go!
What are the biggest benefits?
There are many practical benefits to running an SMSF instead of just investing in your personal name. Most notably, the tax rate is significantly smaller for SMSFs, ranging from 15% to 0% as opposed to the 30% to 45% usually paid on personal investments. On top of this, you have more flexibility when it comes to timing your contributions as well as generally allocating your resources. However, by far the biggest benefit is the aforementioned freedom when it comes to making your investment decisions. Additionally, there are added options SMSF members have compared to industry and retail super funds, such as residential and commercial property, collectibles, term deposits and direct shares.
While self managed super funds have many benefits, it’s important to understand that the results you get will entirely be dependent on your knowledge of how financial investments work and your ability to actually make good investment decisions. Running your own SMSF is by no means an easy task, however, the rewards you will get if you manage to work hard and stick to it will be worth it.