Question

How are SMSF funds invested relative to other funds. Are SMSF investment portfolios more or less diversified than others

Answer 1

How are SMSF funds invested relative to other funds.

Self-Managed Superannuation Fund (SMSF) is superannuation trust structure that provides benefits to its members upon retirement. The main difference between SMSFs and other super funds is that SMSF members are also the trustees of the fund. SMSF hold approximately one-third of the total superannuation funds, and it is preferred choice for people who are highly engaged with their superannuation and retirement planning.

Benefits of SMSF

Investment Control : Key benefits of a SMSF is investment control. It provide wider investment choices such as residential and commercial property, collectibles, term deposits and direct shares that SMSF members have compared to industry and retail super funds.

SMSF can borrow to invest in property: MSF members can purchase large single assets such as commercial property

Tax Minimisation: SMSF offer the ability to take a tax-free pension as an income stream upon retirement.

Minimise transaction costs i.e. brokerage, buy/sell, and CGT spread costs: SMSF will allow you to have an almost seamless transition from the accumulation phase to the pension phase without the need to sell down assets, therefore not triggering capital gains tax (CGT) and other transaction costs.

Cost Savings for higher balances: the cost of having an SMSF can be lower than alternative public offer super funds, when the fund balance is high which is greater than $300,000

Asset Protection: Asset protection can be a key consideration for many people, especially business owners and superannuation can be a structure that protects the members from litigation and bankruptcy

Are SMSF investment portfolios more or less diversified than others

SMSF investment portfolios should be more diversified. Diversification is important for any SMSF who doesn’t want to experience loss from ups and downs of portfolio value changes when individual investments increase and decrease during a market cycle.

Owning shares in different industries and countries also other asset classes like bonds, could get a smoother portfolio return without sacrificing return.

International shares will give SMSF better return opportunities: A portfolio with a mix of 48% global shares and 52% domestic shares has given the best mix of risk and return.

Bonds will help SMSF weather all types of markets: The benefit of owning defensive assets. When own some defensive assets that move in the opposite direction will give the portfolio a balance. Eg. when shares fall bonds & gold will rise.