Self-managed Super Funds or the SMSF means private funds managed by the person owning them. They are not the same as retail or industry funds.
In these types of super funds, your money is managed totally by you, which means you get to decide where you want your money to be invested or even insured.
However, a self-managed super fund can have a maximum of six people. When you own the super fund, you become its trustee, managing where all the money goes and entirely responsible for all the funds.
You may find it appealing now that you know the basic meaning of SMSF. But everything has its pros and cons. Although SMSF is an excellent way of investment, they come with their share of risks and faults. It also takes a lot of your time and energy due to work required to be done, including SMSF accounting. We will include many more later.
Therefore, you should be highly mindful of investing your hard-earned money through an SMSF. Read on to know more!
To assist you in choosing the best for yourself, we have gathered some essential points you need to consider while investing through an SMSF.
- As a rule of thumb, the investment should only and ONLY be used for retirement purposes and NOTHING ELSE! It shouldn’t be used for financial assistance for the investor or any family member.
- Asking yourself whether you can invest your time and energy into this apart from your money is necessary. This is because the responsibility of administering, supporting, and managing everything would lie with you.
- Questioning if this kind of investment will increase your cost or decrease it? A higher net return should be the goal of investing through SMSF; therefore, choosing options from the wide variety in the market should be done smartly.
- What were you planning for when you started self-managed super funds? It may be due to the increase in property rates. It may also be because you heard someone having their SMSF.
When deciding on anything, you should think clearly about your personal goals and if you will be able to achieve them. To be sure if these super funds will benefit you, you can take advice from the SMSF tax accountant.
- There are many options open for investments through SMSF. You can invest in property as the rates have soared after the pandemic. You can also invest in stocks as well as portfolios. The main thing to be kept in mind is if these investments will offer you long-term benefits or not, as the aim is to make your old age easier!
- You need to be aware of any restrictions related to SMSF, be it legal, financial, or even corporate.
As a trustee, you will be restricted and not allowed to invest anywhere. You will merely act as the owner of the SMSF and manage everything. Therefore, the sole purpose of you creating an SMSF may be defeated.
- You must also consider which structure you want to go with while investing. In an individual system, at least two members must participate in the SMSF. But in the corporate network, you can have the SMSF only for yourself.
Both structures have their own set of advantages and disadvantages. Nevertheless, the end decision should be made by adequately researching everything.
Now that you are aware of the essential things to be kept in mind when investing through SMSF, here are your responsibilities as a trustee and the risks that would come with it.
Responsibilities of an SMSF
- As the trustee, you will be liable for any transfer or handling of the funds. Even if it’s a joint decision or a decision made by another member, as a manager of these private funds, all the responsibilities and accountability will be on you, which is both a boon and a bane in this case.
- Your responsibility will remain the same even if you are jobless making it vital for you to make decisions after thinking clearly!
- You should also have a good amount of knowledge about both financial as well as legal duties needed as well as complying with the policies and laws. Therefore it is advisable to get accounting services.
Risks involved in SMSF
- You may not be able to get the expected returns for a long time.
- If any member or you face illness or see an unexpected death in the membership, problems may arise between the members.
- You will not be allowed any compensation from any source due to accidental death, losses, or even penalty from higher authorities.
- If you shift from retail or insurance investments to SMSF, you may lose all the money that got into it initially.
As a result, everything should be done step by step.
Your first step should constantly be researching! Research the investments made in SMSF, the investment that your private fund would drive by the involvement of all the members to avoid any losses in the future.
Your second step should be to decide on the investment strategy, set it up, and follow that specific strategy religiously.
The last and never-ending step should be to keep all the financial records, maintain them, arrange them, and have them audited annually or bi-annually by the SMSF auditors.
Now that you see, the risks involved in SMSF are of high-stakes. So managing them should not be considered an easy task. If you want, you can hire Perth accountants for this work; however, it will be time-consuming.
