CHOICE guide to DIY super

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03.Pros and cons

Suitable for you?

A self-managed super fund is usually only worth your while if you:

  • Have a minimum of $200,000 to $250,000 to invest. For smaller amounts retail and especially industry super funds are likely to be more cost-effective;
  • Have some investment expertise and understand the importance of proper investment strategies;
  • Have the time and interest to be involved with your fund;
  • Are disciplined and understand the responsibilities of being a trustee; and
  • Are in a position where your mandatory employer super contributions can be paid or rolled over into the fund.

To find out whether DIY Super would be an option for you, use our quiz.

Advantages

  • Self-managed super gives you control to choose your own investments. As long as you follow the rules and the fund’s investment strategy, you have a lot of flexibility;
  • Greater flexibility in choice of investments under certain conditions;
  • Can be more cost-effective than other types of super, but this depends on how much you have to invest and how much professional advice and administrative assistance you need; and
  • A tool to minimise tax on your other investments. For example, you may be able to integrate your share portfolio into the fund. However, you won’t be able to access the funds until retirement and access may be affected by changes in legislation; you can also decide when to buy or sell investments and thereby minimise Capital Gains Tax.

Disadvantages

  • Needs continuous attention more info
  • You’ll need to be able to devote at least a few hours to the fund each week;
  • High costs: in comparison with industry or even retail funds, a DIY fund can be expensive;
  • It’s only worthwhile if you have a large sum to invest and even then you can pay high fees if you make use of professional advisers;
  • There’s no guarantee you’ll have better returns than other super funds, it can be extremely difficult to beat the market, as you’ll still be selecting from the same investments and dealing with the same market ups and downs as every other super fund. You’d either have to manage your fund yourself in an active and successful manner or find someone else like a financial planner who can do this for you. They’ll charge you fees so make sure the costs don’t eat up your returns. A basic investment principle is to spread risk over different asset classes. Research by the ATO indicates that SMSFs, especially with smaller amounts invested, have a tendency to have their investments concentrated in only one asset class such as cash;
  • If something goes wrong you can’t use the Superannuation Complaints Tribunal. You may also have problems finding redress if you receive inappropriate advice from an accountant. That’s because accountants were granted an exemption from licensing requirements of the Financial Services Reform Act (FSRA) when they advise consumers on certain aspects of SMSFs such as establishment or operation and not on the underlying investments. This means accountants don’t need to fulfil the disclosure requirements under FSRA and don’t need to belong to an approved external dispute resolution scheme. You won’t be eligible for compensation under super law in case of fraud or theft; and a retail or industry super fund may offer cheaper life insurance cover because their large membership numbers enable them to negotiate low premiums. (You can still take out life cover and the premiums are tax deductible.)
 

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