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Over
400,000 Australians now manage their
own super funds. Should you be
the next?
A growing number of Australians have
decided that they are the best people
to manage their retirement finances,
and have set up what are known as SMSFs
(Self Managed Superannuation Funds).
The name says it all, with the key issue
being that the individual sets up his
or her own fund and takes control and
responsibility for the assets and investments
within it.
Why are people doing this, and is it
something for you to consider?
There are several reasons for this trend.
-
In general, big super funds are run
by managers who largely follow the
market, with computer programs allocating
your
funds into investments.
- As a result fund returns are ‘average,’ and
in times of share market losses, your
fund pays the price.
- There is a lack of accountability
for poor performance.
- The funds charge fees on the assets
under management, which reduces your
growth.
- You can’t get any leverage
(i.e. increased returns through borrowing
to
invest).
- You can’t invest in specific
properties.
- Finally, many people feel they
are the best ones to manage their money,
because they care for it, and worked
so hard to earn it in the first place.
Changes to the Super rules in 2007 have
made it easier for SMSFs to be set up,
and for them to be able to borrow funds
to invest in for example property.
Some points of interest include:
-
In a SMSF you can borrow up to 70% of
a property’s value.
- This means you are getting
growth on a far bigger overall investment.
- Capital gains tax is only
10% - or zero if the property is sold
in the
pensioner phase.
- All costs associated with
the purchase are paid by the SMSF.
- In the case of default, the
lender only has access to the asset
in
question, not to other assets in the fund.
What is the benefit of borrowing to
invest in property through an SMSF?
Well, let’s assume you have a sum
of $200,000.
One strategy might be to invest $100,000
in shares, or bonds. The other $100,000
could enable the purchase of a $300,000
investment property.
In this simple example, you then have
a total of $400,000 worth of assets
growing in the fund, which is double
the amount
you otherwise have available.
Assuming 8% annual growth, after Year
One your SMSF would grow to $432,000.
After Year Two, you would be looking
at $466,560. After Year Three, it would
be $503,884 and so on.
Bear in mind that the power of this
strategy lies in time – with the really
big compound growth effect coming further
down the track.
An SMSF is not for everyone, but it
could be right for you.
If you would like to find out more,
please call one of our specialist
team on 1300
850 318 who will be only too pleased
to assist you. |
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