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Pros and Cons of Managing a SMSF

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    The Advantages and Disadvantages of Managing an SMSF

    Managing an SMSF is something more, and more Australians are opting for. In fact, according to the ATO, the number of SMSFs has been growing by almost 6% annually from 2012 – 2016. However, it’s important to note that a self-managed super fund may not be for everyone.

    While an SMSF can be a great way to grow your nuts for retirement, it can also be risky, time-consuming and costly. That’s why it’s important to be aware of the responsibilities and risks of managing an SMSF first. In this blog, we’ll go through the pros and cons of managing your super-fund.

    Would you like to speak to an SMSF specialist? Book a discovery session by calling: (03)99981940 or email on

    Check out our complete SMSF guide.

    What Is A Self-Managed Super Fund?

    A self-managed superannuation fund, or SMSF, is a type of private superannuation fund. It may include as many as four members, all of whom are required to hold the position of director or trustee. The members are accountable for all decisions made by the fund as well as the fund's continued compliance with all applicable laws. SMSFs are subject to regulation by the Australian Taxation Office. The regulations that govern SMSFs are the same as those that govern retail super funds; the main difference is that you take a far more hands-on approach to manage your retirement savings.

    What Are The Requirements For Setting Up A SMSF?

    The funds must be used solely for the purpose of retiring, and the following conditions must be met:

    • Maintain detailed records, and submit them for auditing to an SMSF-approved auditor.
    • Have the knowledge and understanding of finances necessary to make the necessary and suitable choices;
    • Invest in a way that is consistent with your level of tolerance for risk;
    • Prepare yourself to take on the job of the trustee, which involves the duty of making choices that may have repercussions in the judicial system;
    • Be prepared to devote some time to investigating potential investing avenues;
    • Think about getting the members of the fund insurance that covers things like their lives, their incomes, and their disabilities.

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    The Pros of Managing an SMSF

    1. Total Financial Control

    With a self-managed super fund, there is no risk of a fund manager spending your money irresponsibly. The fund is entirely under your management, together with the control of any other SMSF trustees. This means that you have control over your retirement savings and may choose how they are invested. This is a significant opportunity for those people who already own particular assets, such as real estate or collectibles, and want to put their money into the stock market. If you want to start exercising more control over your retirement savings, you could find it beneficial to establish a self-managed super fund (SMSF), even if you don't yet have a specific investment item in mind.

    In an SMSF, the members have full authority over the management of their funds. This indicates that they will be in charge of determining how the fund will be invested. This can be extremely useful when considering whether or not to take advantage of fresh opportunities that, to the average super fund, could appear to be too risky. You have the option to put your money into a diverse collection of assets, such as stocks and bonds, managed funds, fixed interest investments, real estate (both residential and commercial), and more.

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    1. More Freedom to Invest

    If you have complete financial control of your retirement account, you will have a greater degree of flexibility with regard to the investments you make. You and any other members of the SMSF have the ability to invest in any one of a number of different assets of your choosing. This can be anything from home property to commercial property for your company, gold and silver, cash term deposits, Australian and international shares, and even cryptocurrencies like bitcoin and Ethereum. You will have a great deal more flexibility in the investments you want to make so long as the asset you wish to invest in is able to pass the sole-purpose test and your SMSF continues to remain compliant with the ATO.

    1. Borrow money with your SMSF

    Even though people have been using Self-Managed Super Funds (SMSF) to buy investment properties for a long time, the big change that has occurred recently is that you may now borrow money from your SMSF in order to buy investment properties. Property investments are less volatile than stock investments, allowing you greater control over your money. Even if purchasing a home outright is a much simpler choice, more people are able to invest in real estate through SMSF since they have the option to obtain a mortgage.

    1. Save on Fees

    There is a possibility that, throughout the course of your lifetime, you will avoid incurring costs amounting to thousands of dollars. This is due to the fact that we have a flat-rate administration and setup cost, as opposed to an industry fund, in which you would pay a portion of your retirement savings to a fund manager. This indicates that your price will not go up in proportion to the growth of your super balance. Therefore, if you have a bigger balance in your super, switching to a self-managed super fund will allow you to save a greater percentage of your value in costs.

    1. Lower Costs For Bigger Funds

    The management of your SMSF may allow you to enjoy the benefit of reduced recurring costs. SMF is projected to have an operational expense ratio of 0.5 percent, according to estimates. However, according to the ATO[1], the operational cost ratio will be lower the larger the fund is.

    1. Quicker Decision Making

    When it comes to a fund's success, the ability to make choices quickly can make a significant impact. Rapid choices can be made to either invest in profitable trends or withdraw from unprofitable trends. These choices can be made simultaneously.

    1. Tax Benefits

    When you're in charge of administering an SMSF, you have the ability to make use of a variety of different tax breaks related to superannuation. For instance, the tax rate on superannuation is 15% on top of income tax, but there is no GST applied (in retirement). Therefore, the income that your SMSF investments, such as real estate, generate for your retirement can qualify for substantial tax benefits thanks to these investments!

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    The following is a concise summary:

    • After they have reached retirement age, the SMSF owner won't be responsible for paying any capital gains tax.
    • When compared to your personal tax rate, which may reach as high as 46 percent, the maximum tax rate that can be applied to rental income, after deducting expenses and taking into account any capital gains from the sale of property, is only 15 percent.
    • If the members of the super fund contribute money to the fund by sacrificing some of their salaries, you may be entitled to tax breaks on the interest you pay on your loan.
    • Depreciation of property and investment-related insurance are two examples of tax-deductible expenses.
    • You should be able to claim further tax deductions on a significant number of the costs, if not all of the costs, associated with the purchase, management, and sale of the property.
    1. Consolidate Super with Family

    You and up to three other members, such as a partner, spouse, or a member of your family, can consolidate your superannuation into a single account using an SMSF. This gives you the opportunity to increase your super's overall balance, which in turn makes it possible for you to take advantage of more investing options.

    1. Diversify your investment assets

    It is not recommended that all of your retirement savings be invested in one or more residences that you plan to rent out. This is just one more method you may use to spread your asset portfolio over a variety of investment fields; since diversifying your holdings can make your pension fund more secure and expose it to less risk, you should do so.

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    1. Live in the investment property once you retire*

    During the time that you are contributing to the fund, the property will be held in the name of the fund rather than your own name. Nevertheless, once you've reached retirement age and begun receiving payments from your superannuation plan, you'll be able to sell your property and put the proceeds toward purchasing an investment property directly from your retirement account. Then you can put your feet up and relax while you spend your golden years in the house of your dreams.

    The Cons of Managing an SMSF

    1. Time-Consuming

    It takes a significant amount of time to research possible investment avenues. Because you have to monitor how well your investments are doing, managing the SMSF is an activity that requires your whole attention at all times.

    It's possible that managing an SMSF will take up a lot of your time. You, as a member of an SMSF, are responsible for conducting research to identify investment assets that are appropriate for your retirement strategy. The management of the performance of your investments is another obligation that falls on your shoulders.

    Of course, the amount of care and time invested in a property is directly proportional to its value. For instance, launching an investment in real estate will need a significant amount of time upfront because you will need to buy the property and find renters. However, once you begin to generate passive income from your home, you should hopefully have limited interaction with it on a day-to-day basis until something goes wrong. Hopefully, this is the case.

    On the other hand, if you want to be successful in foreign exchange trading or investing in cryptocurrencies, you will need to pay a lot more attention on a regular basis. This is because you will not want to miss important trades. It is essential to acquire the necessary knowledge and be well-prepared for the amount of time needed for each investment asset.

    Would you like to speak to an SMSF specialist? Book a discovery session by calling: (03)99981940 or email on

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    1. Investment Knowledge Required

    Setting up and operating an SMSF can be quite a struggle for members of the SMSF who lack prior experience in the areas of finance and taxation. The inability to make sound decisions can have serious repercussions, both financially and legally, particularly in relation to taxation issues.

    Managing a self-managed super fund (SMSF) might be problematic if you do not have sufficient investment skills or enough time to run your fund. Because of this, it is essential to undertake extensive research on all investment assets included in your plan in order to have a complete understanding of the risks that are involved. Before putting money into anything, it is a good idea to discuss the matter with a financial advisor.

    1. Additional Expenses That Should Be Considered

    The management of an SMSF may entail additional expenditures on top of the initial setup and ongoing administrative fees. Accounting and auditing services are typically considered to be additional fees for SMSFs.

    There is also the possibility of additional expenses to take into consideration for each sort of investment. For instance, legal costs and stamp duties are expenses that are associated with property investments. Your SMSF might have to pay buy-and-sell costs as well, depending on the trading platform that you choose for FX or shares.

    It is important to be aware of the fact that you may be subject to expensive legal fees and fines if your SMSF is not in compliance with the laws and regulations imposed by the ATO.

    Because additional expenses may have an effect on both your existing balance and your plans for retirement, it is essential that you take the necessary steps to guarantee that your SMSF will always have a surplus that is sufficient to assure the fund's continued existence.

    1. Not Eligible for Government Compensation Schemes

    In the event that money is lost due to a variety of factors, including some that are beyond the trustees' ability to control, SMSFs are unable to use government compensation systems. If an SMSF experiences a loss as a result of fraud or theft, the regulations governing superannuation do not permit them to be compensated for their losses. Because of this, it is essential to give some thought to acquiring insurance coverage for your SMSF and the investments it holds. Your super balance and the goals you have for retirement can be preserved in this way.

    1. Subject to Compliance-Based Regulations by the ATO

    The ATO is in charge of regulating SMSFs and mandating that they comply on a consistent basis. As a direct consequence of this, members of SMSFs are accountable for ensuring that their respective SMSFs comply with all applicable laws and regulations. Members of SMSFs who do not comply with the laws imposed by the ATO will be subject to severe financial and legal consequences. This could cause them to lose a significant portion of their funds for retirement and potentially result in legal or criminal sanctions.

    It is essential to keep in mind that selecting someone to manage your retirement savings might be a significant choice. While there are a lot of perks and advantages, there are also a lot of obligations and expenses to think about. Moreover, depending on the investments you make, it might become even more time-consuming and hazardous.

    1. Reduced Access To Dispute Resolution Bodies

    SMSFs have limited access to dispute resolution bodies, which means that the fund is at risk of harmful effects if the directors or trustees are unable to acquire competent legal aid. This is because SMSFs have limited access to dispute resolution bodies. The resolution of disputes through the use of traditional courts will result in increased costs for an SMSF.

    1. Property Investment Type and Usage Restrictions

    You are only permitted to utilize your SMSF to purchase either a commercial or investment property. It cannot be used to purchase a home for you or a member of your family, not even for personal rental purposes; rather, it must be rented out to renters who are not members of your family. As a result, it cannot be used to benefit either you or your family before retirement.

    1. Property can be complex to sell if using your SMSF to purchase it

    Although the value of an investment in shares is more likely to go up and down than that of real estate, it takes much longer to sell property than it does shares, and selling it can also be quite expensive. When the time comes for you to sell your home, you run the risk of finding that its value has not increased due to fluctuations in the housing market.

    1. Cost of purchasing, maintaining and selling an investment property when using your SMSF

    Even though you should be able to count on a regular monthly income from an investment property, there is still a chance that you won't have somebody living there at any given moment. When purchasing real estate, you can have to pay significant costs such as stamp duty; when it comes time to sell the property, you'll have to pay similar taxes again. You will also be responsible for the upkeep of the property over the duration of the investment, which will result in more money being deducted from your retirement account. You can take out a loan to pay for the acquisition of the property, but you cannot take out a loan to improve the property; therefore, you will need to ensure that you have sufficient cash to utilize as and when they are required.

    On a side note - The Importance Of Ongoing Financial Advice

    It is essential for SMSFs to have access to reliable financial advice. Before you make the decision to start a business of your own, it is strongly suggested that you consult with a financial planner beforehand. The dangers that are associated with managing an SMSF will be explained by the advisor. A financial planner can provide assistance in the administration and investment decision-making of a self-managed super fund (SMSF) once the fund has been established. However, it is essential to keep in mind that a financial advisor is just tasked with making recommendations, and it is the trustees' obligation to put those recommendations into action.

    Utilizing the services of a Certified Financial Planner (CFP) is essential. It is extremely recommended that you make use of a CFP due to the following reasons:

    Research on Investments of a Higher Quality

    The members of an SMSF may be missing out on investment opportunities that might be uncovered with the assistance of a financial advisor. Your financial advisor can also assist you in sorting through the various investment options available to find the one that is most appropriate given your aims and priorities.

    Avoiding Financial And Legal Pitfalls

    A member of an SMSF who does not have appropriate financial or legal knowledge can benefit from the assistance of a financial advisor in reducing risks. The adviser is able to offer advice on a variety of topics, including taxation, membership, and financial compliance, among other things.

    Administration That Is Easier To Handle On A Daily Basis

    It is feasible to give your financial advisor the authority to make transactions on your behalf and delegate that responsibility to them. As a result, the members of the SMSF may feel less pressure to perform day-to-day management responsibilities and be better able to monitor their numerous investments.

    It is not a decision that should be made flippantly to put your retirement savings into a self-managed super fund (SMSF). It is highly recommended that you seek the assistance of a Certified Financial Planner. You will be able to assess the benefits and drawbacks of self-managed super funds (SMSFs) with their assistance and determine whether or not establishing one would meet your requirements.

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