1. Do you have enough super savings for an SMSF to be a cost effective option right now?
Unless you do, it might be advisable to wait. In keeping with guidance from the Australian Taxation Office, AMP generally recommends that an SMSF has at least $200,000 in super savings to be a cost effective option. That's because, for amounts under $200,000, the fees on a typical retail, industry or corporate super fund are generally cheaper. You should check the fees charged on your existing super account to check whether this is true for you. That said, it's important to remember that this recommended $200,000 balance relates to the total amount to be held in your SMSF. So, this includes your super savings as well as the super savings of any other fund members (eg your spouse or children).
2. Do you have time to manage your fund?
You should be prepared to spend time setting up your SMSF and then managing it on an ongoing basis. It typically takes around six to eight weeks to set up an SMSF, but can take longer depending on the parties involved eg other institutions you are rolling your super from. Some of the steps involved in completing the set-up of a new fund require some planning. This includes:
- applying for your fund's ABN and TFN
- setting up a bank account for your fund
- deciding on your fund's investment strategy
- requesting rollovers from your existing super fund
- setting up insurance through your fund, and
- keeping on top of administration to ensure your fund complies with the law.
We can help make setting up your fund easy.
How much time you spend managing your fund will depend on your circumstances. However, research by Investment Trends, shows that a self managed super fund trustee spends on average approximately eight hours managing their own administration, compliance, reporting and investment research each month.
Some of the main tasks include:
- managing your investments
- managing your fund's administration, and
- staying up-to-date with relevant super and tax changes, as well as other issues that affect your fund, like changes in interest rates and market conditions.
The amount of time required to manage your fund's investments may depend on your investment strategy and personal interests. For example, some people enjoy buying and selling shares, which generally involves monitoring the share market regularly. Other people prefer to invest in assets that don't generally require such frequent attention, like an investment property.
Compulsory administrative tasks that you'll have to stay on top of include record keeping, tax and audit documentation. People who have an SMSF often look for ways to minimise the time spent on fund administration and compliance because it doesn't directly contribute to the returns of the fund. This is where SMSF specialists, like AMP SMSF Solutions can help. They can reduce the time you need to spend on ongoing fund administration tasks, by providing services and tools to help with your fund's administration, compliance and paperwork, so you have more time to focus on what's important to you.
However, it is important to remember that, ultimately, you (and the other fund members) are responsible for your fund's ongoing compliance. And, if things go wrong, there can be significant penalties.
You must also act in the best interests of all fund members. This means you need to stay on top of any changes to relevant super and tax rules, as well as the changing needs of your fund's members.
To make the most of investment opportunities, you should be aware of the broad economic trends that might impact the fund's investments eg being aware that, as interest rates drop, so may the returns on the fund's cash assets.
3. Do you feel confident setting and managing your own investment strategy?
This is a key consideration for people who are considering setting up their own SMSF. The general process when designing an investment strategy involves:
- determining the investment needs of each fund member, including their investment time horizon and appetite for risk
- identifying the investment building blocks you need to meet members' needs eg cash, property, direct shares, managed funds or other investment assets, and
- selecting the individual investments you want to make, and considering the insurance needs of fund members and determining whether it is appropriate for you to hold insurance within the SMSF.
Once you have prepared your investment strategy, you should regularly review your strategy and monitor your fund's investments to ensure they are on track. We can refer you to a financial planner if you would like help setting your fund's investment strategy.