Being able to manage and invest your retirement savings seems like a very appealing idea, doesn’t it? You can self-manage your super fund in a cost-effective way—all you need to do is make sure you got it correct.
However, the cost-effectiveness of a self-managed super fund (SMSF) has been long debated. So what really are the costs and benefits of having an SMSF?
Here are two pros and cons to an SMSF:
PROS
- You Can Take Control of Your Super Fund
Running your own SMSF offers a desirable choice for flexible investments. That is especially true when you are disappointed with your current super fund’s performance and tax and estate planning issues.
If you want to take control of your financial future and personal retirement income goals, running your own SMSF is a good choice. Meanwhile, for small business owners, getting an SMSF means having the opportunity to invest in assets related to your business.
Whatever the reason, it is clear that having an SMSF gives you control over your financial future, and that’s enough reason for most people.
- You Have Flexible Investment Options
An SMSF gives you control over your own investment plan, including selecting which assets to invest your retirement savings in. As an SMSF trustee, it is your responsibility to develop your own fund’s investment strategy, giving you complete control over investment choices and approach to growing your money.
Depending on your investment results, it could also be cost-effective compared to a traditional, large super fund. You also have more flexibility in tax management, estate planning and distributing your assets to your family.
CONS
- SMSF Requires Work
Benefits aside, running an SMSF requires work. You need to allocate significant amounts of time to complete the necessary paperwork and pass all strict compliance requirements for super funds. Failing to comply with requirements may result in substantial penalties.
Many people like being responsible for their retirement, which entails tailoring their investments for more significant returns and acquiring skills and knowledge. But it actually takes active research on how to manage assets.
SMSFs are also treated differently than other funds since you don’t have access to normal compensation arrangements. Whenever you have disputes, there is no complaint body you can go to.
- SMSFs Are Competitive With Big Funds
There is no set amount to how big your super needs to be for your SMSF to be cost-competitive with a large public super fund. An SMSF is generally less cost-effective when your fund has low member balances.
In addition, running an SMSF can be more expensive when you outsource most of the administrative tasks to your service providers. These costs can weigh on your high investment returns. Smaller-balance SMSFs also can’t achieve enough diversification compared with larger funds, making investment risk more apparent.
Conclusion
Running an SMSF is a big decision, and you need to weigh the advantages and disadvantages before committing to it. Just make sure that you’ve met all the necessary qualifications and requirements for a smoother process.
If you are interested in running an SMSF, get in touch with us! We at New Wave Advice specialise in retirement investment, building wealth, budgeting and cash flow and more! We use the best technologies and resources to continue providing the best financial advice on the Gold Coast! Talk to us today!
