As the CEO of SuperIQ, a business which looks after administration of self managed superannuation funds, Andrew Bloore is often asked, “Where should my SMSF invest?”, and his answer is always the same … it depends on what you want it to do. An SMSF can hold any allowable (i.e. non personal use) asset in any currency anywhere in the world, giving significant investment flexibility to your fund.
Bloore encourages people to focus on the investment strategy, and recent changes to the law require regular reviews of an SMSF’s investment strategy. It’s important to know when your fund is not performing the way you want it to, and a good investment strategy will assist you. You set the mandate and if you’re outside that range, you should know about it. Then you can decide if you have to change your strategy or if you need to change your investments. Make your fund work for you by setting a meaningful strategy and then monitoring it.
The Superannuation Industry (Supervision) Act is very helpful. For example, it has the ‘sole purpose section’, Section 62, which is a broad direction to start you thinking about the purpose of your super.
The Act says that super is for:
- your retirement
- you before retirement if you are no longer able to work
- your family if you die.
So consider where to invest with these points in mind. First, your retirement. Work out when you want to retire and what that means to you. Then you can work backwards to determine what you need to do today to achieve it. Next, super is there if you are no longer able to work, so what if that happens tomorrow? If you don’t have enough assets in the fund, insurance will help. Another of the recent changes to super is a requirement to determine if you (or any member) need insurance. Finally, in the event of your death, where do you want your assets to go? Your family. The Act is designed with your best interests in mind.
This leads to three basic questions before working out what to invest in. What do you need? When do you need it? Who do you want it to go to on your death? The outcome of this clarity of goals leads to your investment strategy and your estate planning.
When you have set your goals, strategy and estate plan, you need to decide exactly what to invest in. This requires a combination of professional advice and making up your own mind. Your adviser should get to know you and the level of risk you are comfortable with. This is not static and is different for each person. What one thinks is a low risk investment, you might think is very risky. The key is finding a comfort level. If you lie awake at night worrying about your investments then they are too risky for you.
There are traps along the way as there are so many things that an SMSF can do. You can get carried away by trying to double your assets overnight but in the real world that is like betting on red or black at the casino. Not a smart way of strategically achieving the goals you set for yourself. Your fund can borrow and this may be a good way to build your retirement assets, but you are adding to the risk. The implications of getting it wrong are significant and you must follow the rules exactly. Your adviser can help you understand these rules and your requirements.
Everyone is different so you need to make it your fund and design it just for yourself and your dependents. That’s the importance of self in self-managed super, since it’s about you and your family’s future, you must get to know your fund a lot more intimately.