Being actively involved in how and where your super is invested, could make a real difference to your retirement savings over the long-term.

If you are considering going down this route, there are some factors to think about such as your retirement goals, how long you have until you retire and the amount of risk you’re comfortable taking on.

For instance, if you’re close to retiring, you may want to avoid putting your super somewhere that’s too risky. Riskier investments tend to experience more ups and downs so time may help to ride them out.

This article considers four examples of investment strategies for your super.

The importance of diversification

Before we discuss the various investment strategies, it’s important to highlight the significance of diversification. Like any type of investment, spreading your super across different types of investment options, can help to build a strong portfolio and manage risk.

Why?

Because if you were to invest all of your super into one asset class such as property, your investment may suffer a loss if the property market was to fall in value. However, if you spread your money across multiple assets, you may have a different result.

Investment strategy type 1: Growth

If you don’t think you’ll be accessing your super for at least 10 years or more, a growth strategy may work for you as a longer timeframe may help an investment portfolio withstand volatility while aiming for returns.

A growth strategy that follows a higher risk, higher return approach tends to have a larger focus on assets that are exposed to capital appreciation. That is, investing in assets which are expected to grow at a higher rate than the industry or overall market.

For instance, this may involve an investment of around 70-85 per cent in shares or property with the rest in fixed interest and cash-based investments.

Historically, over any 20-year period, a growth strategy has delivered better returns than more conservative portfolios which would mainly be invested in fixed interest and cash. However, over a short-term period, you may experience significant losses as a result of market volatility.

Another key benefit of a growth strategy is that by making greater returns on your investment, your savings are more likely to keep up with the rising cost of living. This is arguably important because over time inflation may reduce the value of your retirement savings, which could make it difficult to maintain your standard of living when you’re retired.
Investment strategies for your super

Investment strategy type 2: Balanced

Similar to a growth strategy, if you aren’t planning to access your super anytime soon, opting for a balanced investment portfolio may be another option.

This strategy is aimed at balancing risk and return so your portfolio has enough risk to provide reasonable returns, but not enough to cause significant losses.

A balanced strategy typically involves investing around 60-70 per cent in shares or property, with the rest in fixed interest and cash-based investments.

Investment strategy type 3: Conservative

You may be considering how you could protect your capital if you want to access your super within 3-5 years.

A safe or conservative strategy follows a lower risk, lower return approach so it’s really about preserving the value of your investment portfolio. While there may be less risk of losing money, a downside could be that your returns may not
keep up with inflation.

For example, this could involve investing around 20-30 per cent of your super in shares and property, with the rest in fixed interest and cash-based investments.

Investment strategy type 4: Ethical and sustainable

You may choose not to invest in certain companies based on ethical grounds. For example, taking a stance against investing in firearms. This approach is called ethical or socially responsible investing.

There is also sustainable investing which goes beyond incorporating just ethical and social factors. That is, it approaches investing from an environmental and governance lens too. Some super funds now offer this, so if these factors are important to you, speak to your super fund for more details.

If you’re a self managed super fund (SMSF) trustee, there are a range of sustainable managed funds which you can tap into.

Review your investment approach

You may want to review your current investment approach with your super fund or SMSF to consider how it aligns with your goals and risk comfort.

For example, if you are looking to take an active role by directly investing your super in shares, exchange traded funds and managed funds, there are super products and platforms which enable you to do this.

Alternatively, a SMSF is an option that enables you to have more control over how your super is invested with the added bonus of being able to access more investment options such as direct property and commodities. You also have the ability to borrow within your super fund for investment. There are a
number of administration requirements however, as well as legislative requirements to adhere to.

You may want to consider speaking to a financial expert when determining which super product may be best for you.

This article was prepared by BT, a part of Westpac Banking Corporation ABN 33 007 457 141, AFSL and Australian Credit Licence 233714. This information is current as at 22 May 2019.

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This article provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. It does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to these factors before acting on it. This information may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. BT cannot give tax advice. Any tax considerations outlined in this article are general statements, based on an interpretation of the current tax law, and do not constitute tax advice. The tax implications of investing in property, shares or superannuation can impact individual situations differently and you should seek specific advice from a registered tax agent or registered tax (financial adviser).

Superannuation is a means of saving for retirement, which is, in part, compulsory. The government has placed restrictions on when you can access your investment held in superannuation. The Government has set caps on the amount of money that you can add to superannuation each year on both a concessional and non-concessional tax basis. There will be tax consequences if you breach these caps. For more detail, speak with a financial adviser or visit the ATO website.

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This isn’t necessarily because your demographic is particularly gullible. Rather, it’s because you’re more likely to control higher levels of wealth, perhaps as the trustee of a self-managed super fund (SMSF); you’re accustomed to making financial decisions; and you’re actively looking for attractive investment opportunities. What scammer wouldn’t want to target you?

Scams take many forms but when it comes to superannuation, two stand out:

1. fraudulent investment schemes, and
2. schemes offering early access to superannuation.

Either way, the result can be a major financial loss and dreams destroyed.

Golden opportunity

One clear warning of a scam is an unsolicited approach. Someone contacts you, usually by phone or email, offering an investment that is ‘both safe and delivering high returns’. This person will often know a lot about you, reciting accurate personal details they claim you provided in a questionnaire you completed earlier. Their story is supported by an apparently authentic website and, enticed by the attractive returns and smooth sales talk, you make an initial investment. At the beginning you receive statements showing your investment is growing steadily prompting you to add further funds. Then things go silent. Their phone number is disconnected, emails bounce and the website disappears, along with any hope of recovering your funds. Your stomach lurches. A cold sweat saturates you. You’ve been scammed.

Wonderful as modern technology is, it makes it easier for fraudsters to appear legitimate and transfer money in an instant. They close down one operation and set up another with ease. It doesn’t help that we give away much of our personal information, and what isn’t available for free can often be purchased by criminals.

Early access

The other major scam that lures many who need money quickly is the promise of early access to superannuation. This is how it works.

Bob’s superannuation is just sitting there, the solution to his financial problems if only he could access it.

He searches the internet for options and an advertisement promising early access to super pops up. This puts Bob in touch with a ‘specialist’ who helps him set up a SMSF, telling him that as the fund trustee he will be able to get hold of his super money. Bob signs the paperwork to set up the fund and rollover his super, but the money doesn’t turn up where it should. Eventually Bob discovers that his retirement savings were transferred to a bank account controlled by the scammer then moved overseas.

Not only has he lost the lot, Bob now faces a big tax bill for accessing his super prematurely. The scammers didn’t tell him that early access to super is only available:

• in cases of incapacity,
• to pay for medical treatment if seriously ill,
• if in severe financial hardship and can’t meet immediate living expenses, or
• if terminally ill.

Protection is the best cure

A few simple precautions can help protect your super (and other savings) from scammers.

• Hang up on unsolicited phone calls and delete suspicious emails.
• Take care when sharing personal information.
• Visit scamwatch.gov.au for updates on scams that are doing the rounds.
• If you suspect a scam report it to Scamwatch, even if you haven’t lost any money.
• Seek advice from a licensed adviser. Legitimate advisers and investment managers appear on ASIC’s list of Australian Financial Service Licence holders.
• And beware of dating and romance schemes. They are more common than fraudulent investment schemes, result in bigger financial losses, and are targeted at the same demographic!

For more information, contact Leenane Templeton on (02) 4926 2300 or email success@leenanetempleton.com.au.

Source: ASIC’s website www.moneysmart.gov.au – Financial advisers register

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The property market is one asset class that is showing signs of recovery following the severe economic downturn caused by the Global Financial Crisis (GFC). Most people have a property investment somewhere in their current portfolio – or would like to. Sometimes this is simply through “the great Australian dream” of owning your home, or maybe through an investment property. In other cases, investing into property may be in a more indirect way, such as via listed property trusts and other collective investments.

Characteristics
Since 1980, property has produced returns similar to the share market, both achieving an average of 14% pa including capital growth and income. However, in comparison with shares, property tends to be less volatile. Tax advantages may also be attached to some of the returns from property. It is a popular investment for negative gearing, as banks will lend a high proportion of the purchase price. Interest expenses in excess of the income generated by the property can be claimed as a deduction against other income. 

Although both the property and share markets collapsed during the GFC, property generally operates on a different cycle to the share market. This allows for effective diversification, and therefore a reduction in portfolio risk. The tangibility of property appeals to many investors, and the willingness of banks to lend against property allow it to be used in an investment gearing strategy. 

Even so, property investment is not risk-free. As with any investment it is important to differentiate between cost and value. The long duration of the property cycle makes the timing of an investment a more critical factor than with other asset types, and property is best viewed as a long-term investment. Investors also need to consider the relatively high costs of buying and selling property as part of the equation. 

Finding value
There is a wide variety of property available, from residential to commercial. Some are relatively low risk while others are high risk, speculative investments. It can also be difficult to obtain all the information one might require to make a fully informed investment decision. Sellers don’t usually tell buyers about the rotten floor beams or the dodgy wiring, so purchasers of property always have to keep the maxim ‘buyer beware’ top of mind. 

This isn’t always a bad thing. It creates opportunities for astute buyers who can obtain an information advantage. One BHP share is identical to another, but each property is in some way unique. Those who take the time to understand property can do well from this asset class.

And then there’s tax
The tax issues that arise from property investment can vary greatly, depending on how your investment is made and the activities that take place whilst you hold it. For example, if you have invested in a property development, a number of complex tax issues arise such as GST and whether profits are taxed as income or capital gains. Make sure that you seek appropriate advice as early as possible to ensure you are paying the correct type and amount of tax.

Is property right for you?
Many property promoters pitch their offerings indiscriminately, which sometimes results in unhappy investors. As with any investment, a property purchase must meet the specific needs of the investor. Take the time to make your decision supported by unbiased advice.

For more information, contact us at Leenane Tempelton on 02 4926 2300 or email success@leenanetempleton.com.au

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When it comes to helping your children or grandchildren get a financial headstart in life there are so many options available however your generosity could create tax issues down the track. Here we explore this topic from a few different angles, depending on how you wish to help them.

Education

If you want to guarantee that money invested for a specific purpose in your child’s life is used for that intention, there are a number of ways to make sure this happens.

If you look around, there are plenty of investment products aimed squarely at helping parents save for education. They are often referred to as “Education Savings Plans” or similar. The savings plans can be set up to transfer to the child’s name at an age specified by you. Many of these funds charge minimal fees and the funds can be used for paying for books and uniforms, repaying HECS debts, and even to purchase musical instruments and lessons. 

Home ownership    

Due to the increasing difficulty faced by many young Australians in saving for their first home, assistance from family members is likely to become more common. A facility is available which enables parents to help with the purchase at no direct cost to themselves. The “family guarantee” loan allows parents, or another family member, to use their own home as security on their child’s mortgage. If you choose to act as a guarantor for your child’s mortgage, be aware of the implications. As guarantor, you are responsible for the entire loan if your child cannot meet repayments. 

Another option that places less risk on your assets is to lend your child money to make or increase their home deposit. Combining a parent loan with the first homeowner grant can make a substantial impact on the life of the mortgage. 

If you would prefer to give the gift of knowledge, make sure your offspring are aware of other opportunities such as First Home Buyer Savings Accounts whereby they can save their own deposit faster by receiving higher interest and paying the lower tax rate of 15% on those earnings.

Accessing tax breaks

Parents may be well aware of the value that spreading income across family members can have when it comes to tax time. But beware. The Australian Tax Office ensures money is not placed in children’s names purely to give Mum and Dad a tax break. For this reason, it can apply more aggressive tax rates for passive income invested in the name of a person under age 18.  So when setting up any investment in this way, make sure you check with your adviser first.

The key to giving your kids a leg-up is to have a clear objective before you start. With so many options available it can get confusing so be sure to ask your financial adviser for professional advice.

Call (02) 4926 2300 or email us. 

To discuss some of the opportunities parents have when it comes to helping their children financially please contact the team at Leenane Templeton. 

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Basically, you can do whatever you like with your money while you’re alive. But what control do you have over your assets when you die? It’s an interesting thought that most people don’t like to dote on, however with more wealth being created through superannuation funds, it’s a thought that will require action at some stage – and the sooner the better.

It has been estimated that members of the baby boomer generation will pass about $600 billion to their children or grandchildren over the coming decades. This wealth will in some cases come in the form of family businesses moving to the next generation. In others, it might be more passive investments, such as shares, property and cash. 

Each of us might only have control over a small piece of this inheritance bonanza. Nonetheless, how much thought have you given to what it will mean to your beneficiaries and how they'll remember you? 

Preparing your legacy

The billionaire US investing guru, Warren Buffett, has some pretty clear views on the legacy he wishes to leave to his children. He has been quoted as saying that he wants to leave them enough money so that they will think they can do anything with their lives, but not so much that they can afford to do nothing.

The first step of course is to determine what assets you have that might form part of your financial legacy. Shares, property, superannuation and life insurance can be treated very differently under estate laws, so it's crucial to have this checked by your trusted advisers.

Next, you might want to think about the opportunities and values you want to leave to your beneficiaries. Do you want to "rule from the grave", or let them make their own decisions about how they tackle life's challenges?

Perhaps other bequests — to charities, for instance — will be your way of reflecting both personal gratitude and your preferred value system.

Who can help?

On the practical side, there are various professionals to help you to create your personal legacy. For example, enlisting a solicitor to draft your will and related documents is crucial. And we can advise you on superannuation and investment matters.

It might be a good idea to take time out to reflect on these important issues. Don’t wait until you’re sick or old to plan your legacy. Start now and plan to have the time of your life so you’ll have something memorable to leave behind!

Sources:
Musgrave, R. "Values based advice: How to create a living legacy", Australian Journal of Financial Planning (Volume 3, Number 1, 2008)
www.familymoneyvalues.com “What does family legacy mean to you?”

Call (02) 4926 2300 or email us. 
To discuss your financial future and that of your legacy, please do not hesitate to contact the team at Leenane Templeton. 

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The 2015 investment landscape could resemble the plot of The Hunger Games, where investors face a changing and unexpected environment that requires multiple talents and smarts to emerge victorious. Expectations for 2015 are for global share market returns of 5 – 10 per cent, but there could be some volatility ahead.

At the beginning of 2015, global cash rates were close to zero and bond rates both internationally and in Australia were close to multi-decade lows. The Australian share market delivered flat returns over 2014 (a price return of just +1 per cent), and at the beginning of 2015, stood at levels which were no higher than 2006. With patchy global economic growth and with Australia in particular facing a painful adjustment phase as the resources boom winds down, there’s no shortage of challenges to tackle.

What will it take to ‘win’ in 2015?

1. Be prepared to adapt quickly to changing market conditions

“May the odds be ever in your favour” is the popular catchcry from The Hunger Games, highlighting the element of chance. This saying may provide little comfort, but a lot can be done to tilt opportunities in your favour.

However, the range of likely returns around those forecasts (the ‘standard deviation of return’) is large: plus or minus 20 per cent for shares, versus a wellbehaved plus or minus 5 per cent for high-yield debt.

2. If you choose freedom, you must accept the risk

Your risk profile is important in determining whether you are able to access wellvalued assets that may take time to pay off, or whether you need to be more prudent with your investment choices.

As we move further into 2015, we observe stretched global share valuations, a US Federal Reserve system preparing for higher official interest rates, pressure in commodity markets in some emerging economies and a continued winding down of the resources boom that has underwritten the Australian economy for so many years. Be mindful of the investment risks you take and maintain a long-term perspective of your goals and risk tolerance.

3. You may need to search further to gain returns

In 2015, the local Australian economy will have to deal with weaker commodity prices and collapsing resource capital spending – problems potentially compounded by a downturn in the housing cycle. Investors looking to gain exposure to economies that are in a more dynamic phase of the economic cycle will therefore need to consider markets in the Asia-Pacific region, within the Northern Hemisphere developed world, and in the emerging world more generally.

4. Be alert for opportunities

In an environment where nothing is as it seems, the lead character in The Hunger Games, Katniss, remains on guard to access valuable supplies. Likewise, given the unpredictable investment landscape, one of the lessons of 2014 was to stay diversified across a full range of asset classes. We expect more of the same unpredictability in 2015. In this environment, active management becomes especially important – investors must have wide-ranging sources of opportunities, an eye for making timely decisions and a nimble process.

The bottom line: believe that adversity offers an opportunity to do your best.

Even if the financial markets resemble The Hunger Games in 2015, it’s possible for investors to weather twists and turns by having a diversified investment mix and making wise choices based on their long-term goals.

Source: Russell

Call (020 4926 2300 or email us. 
For more information on the outlook for investment markets, speak to your financial planner.

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Self-managed super funds (SMSFs) are the largest and fastest growing super sector in Australia and for many good reasons. But before you start an SMSF, it’s important to weigh up both the advantages and disadvantages and consider seeking advice to determine whether an SMSF is right for you.

The advantages

SMSFs can offer a number of features and benefits generally not available with other super options.

More investment control

You can establish your own investment strategy and directly control where and how your super is invested.

More investment choice

You can select from a wider range of investments including all listed shares, some unlisted shares, residential and business property, and collectables such as artwork, stamps and coins.

One fund for the family

You can set up a fund for yourself and up to three other people and consolidate your super balances. This could enable you to invest in assets of higher value than if you set up a fund with fewer members, achieve greater estate planning flexibility, and reduce fund costs.

Borrow to make larger investments

Your SMSF could make a larger investment in assets such as shares and property by using cash in your fund and borrow the rest.

Tax savings

With SMSFs you can take greater control over the timing of tax events, such as, starting a pension without triggering capital gains tax when your superannuation assets move into pension phase. You may also have the option of transferring assets that you own into your SMSF.

Greater estate planning certainty and flexibility 

You can nominate who you would like to receive your super when you pass away, without having to meet some of the constraints that apply to other super funds.

The disadvantages

While an SMSF can offer greater opportunities to take control of your retirement savings, there are some potential disadvantages you should also consider.

Higher costs for lower balances

SMSFs generally only become cost-effective if the fund has $200,000 or more invested. This is particularly true where you outsource and pay for most or all of the fund administration.

Greater responsibility

When you set up an SMSF, you and any other fund members will generally need to be trustees (or directors of the corporate trustee) and will be responsible for meeting a range of legal and other obligations.

Harsh penalties for breaches

The Australian Tax Office has the authority to impose various treatments to deal with SMSF trustees who have breached super laws. These include:

• requiring trustees to complete certain educational requirements within certain timeframes
• disqualifying an individual from acting as a trustee or director of a corporate trustee
• imposing significant administrative penalties on individual trustees and directors of corporate trustees of up to $10,200 per breach
• applying through the courts to impose civil and criminal penalties, and
• giving notice to a trustee to freeze the SMSFs assets where it appears that their conduct is likely to adversely affect the interests of beneficiaries.

Time consuming

You will need to have enough time, knowledge and skills to manage your own super and meet your legal and other obligations.

You should seek professional advice or guidance from your financial planner when deciding on the best superannuation solution for you. It is recommended that you also seek advice from a registered tax agent to determine the tax implications before setting up an SMSF.

Call (02) 4926 2300 or email us. 

To speak to our expert SMSF team about whether an SMSF is right for you, please call Leenane Templeton today! 

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June 30 is fast approaching but there’s still time to consider strategies to help you build your wealth and reduce the amount of tax you pay.

Pay interest in advance

Borrowing to invest may be a tax-effective means of wealth accumulation. This type of strategy lets you purchase property, shares, or any other asset that generates assessable income, by bringing forward next year’s interest cost, and allowing you to claim a tax deduction for those costs this financial year.

Make a concessional contribution to super

If you are self-employed, or earning less than 10 per cent of your income from an employer, you can generally claim a tax deduction for super contributions up to $30,000 (or $35,000 if you were aged 49 or over on 30 June 2014). The Federal Government also pays a 15 per cent low income superannuation contribution of up to $500 on concessional contributions made by individuals with a taxable income of less than $37,000.

Protect your income and save on tax

Income protection insurance not only pays you a monthly benefit of up to 75 per cent if you become unable to work due to illness or injury, but also allows you to pre-pay your premiums and claim a tax deduction. If you pay your premiums in advance, you can claim a tax deduction for next year’s premiums in this financial year.

After July 1, consider the following:

1. Have your financial goals changed?

Your goals can change greatly from year to year. Major life events such as serious illness, the birth of a child, or the death of a parent or spouse can all result in significant changes to your wealth management goals.

2. Prioritise your goals

It’s important to be realistic about how soon you can accomplish your financial objectives. For example, reducing any personal loans is likely to be a short-term goal, setting funds aside for your child’s education could be a medium term goal. Paying off your mortgage and providing for retirement are long-term goals.

3. Be investment savvy

Make sure that your investments support your appetite for risk and your objectives. A tailored analysis will address your individual risk preferences. Regular portfolio reviews with your planner are essential to determine any sell-downs or top-ups that would benefit you.

4. Do you need to change your financial strategy?

Your financial planner has the tools and knowledge to create projections that take into account changes to your goals, risk level, and the timeframes for achieving them. These projections will help you to see where your plans for savings, assets or investment contributions may need updating.

Speak to your financial planner to discuss your end of financial year strategies.
Call (02) 4926 2300 or email us.

Our team of qualified and friendly accountants are ready to help with any questions you may have in relation to your end of financial year preparation.

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The end of financial year is a good time to think about your capital gains and losses for the year.

Timing and planning are everything when it comes to minimising your CGT bill and making the most out of your investment returns.

Capital gains tax (CGT) is incurred when a taxpayer disposes of an asset, for example, commercial and residential property, shares, units in unit trusts or collectables. If the asset sells for a price that is higher than the purchase price, the difference is considered to be a capital gain. Where an asset is sold at a loss (for a smaller amount than it was originally purchased), a capital loss is incurred. Capital losses can be used to offset capital gains in a financial year. It is also possible for taxpayers to carry capital losses forward to subsequent years if they do not have capital gains against which they can deduct them at the time.

Here are some strategies to reduce your CGT liability:

Dispose of poorly performing assets before the end of financial year

In years where you have incurred a significant capital gain, you may care to consider disposing of another asset that will yield a capital loss.

In the event that an underperforming asset will not have a positive turn around, disposing of it before the end of financial year will allow you to use the capital loss to offset your tax liability from any capital gains.

Defer disposal to a lower-income year

Instead of disposing of an asset that you expect to make a capital gain on this year, you may care to consider postponing the disposal if you expect to have a lower taxable income next year. For example, you may be planning to take some unpaid leave or have disposed of multiple assets in the current year.

Plan for CGT events in advance

If you are planning on making any new investments or disposing of assets, it always pays to plan your CGT strategy in advance. Careless timing can cost you a huge amount on your tax bill.

Carry forward your capital losses

You can carry forward capital losses from previous years to offset capital gains in the current year. The real offset value of capital losses diminishes, so if you have incurred a significant capital loss you may care to consider bringing forward the sale of an asset that you expect to make a capital gain on.

Our accountants are here and ready to help with any questions you may have regarding capital gains.

Call (02) 4926 2300 or email us.

If you would like to discuss capital gains at end of financial year please do not hesitate to give the team at Leenane Templeton a call.

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Knowing exactly what needs to be considered before getting your asset allocation right inside (or outside!) a Self-Managed Super Fund (SMSF) is not just a smart move in terms of obeying strict SMSF regulations. It is also a fantastic exercise in developing a broader investment discipline.

No matter your age, gender, risk profile, objective or income, for every investor there is a single golden rule–diversify. It is a truth universally acknowledged that a diversified investment portfolio is likely a safer one, as it will potentially weather storms in a more balanced fashion than a portfolio that is heavy with one specific asset or asset class.

Members of SMSFs are required by regulation to consider the diversification of their fund’s portfolio. The law insists that SMSF members put in place an investment strategy that considers diversification (among other factors) and review it on a regular basis. Then members must ensure their fund’s asset mix matches their investment strategy document.

But what should this consideration involve before such a document is written? How does an SMSF member, or anybody with an interest in the responsible and reasoned diversification of their portfolio, ensure they are asking the right questions of their own risk appetites and resulting asset class percentages?

Each SMSF member or investor will have different reasons for diversifying. For some it will be for greater chances of balancing risk and return in turbulent markets. For others it will be to take advantage of opportunities in various geographical locations. Some will diversify because of the varying time requirements of particular asset classes, holding some asset classes for longer than others and constantly re-balancing.

How do you figure out your own risk profile? Seek professional advice for an in-depth analysis, but it has a great deal to do with your stage of life, and therefore how much time you can afford to wait out the various ups and downs of the market. It also involves other considerations. How much do you have to invest and how regularly? How do you feel about seeing your portfolio fluctuating in value? What are your individual tax circumstances?

Regulations specific to SMSFs outline the fact that you must show consideration to five essential points before writing your investment strategy. These are:

1 Consider the risk and likely return from the fund’s investments taking into account the member’s needs and circumstances.
2 Consider the solvency of your fund. In other words, can it afford to pay benefits to members when required, and pay its own bills such as auditing, accounting and legal?
3 Analyse the role and level of diversification in your fund. What is its purpose? What are the risks if there is inadequate diversification?
4 Analyse the level of liquidity of the fund’s assets, and the role and purpose of this liquidity.
5 Is there insurance for members within the fund? You must be able to prove that you have at least considered whether the fund should hold insurance for SMSF members.

In the world of Australian SMSFs, cash and shares are the front runners, with both typically making up around 30% each of an average fund’s total assets.1 Property, including commercial and residential, takes third place with an average of less than 20% of each fund’s value.

There are several other asset classes that can be considered for ownership within SMSFs, and it is a good idea to seek professional advice on exactly what is and is not allowed. Listed property trusts, foreign property and managed funds tend to be accepted. Artworks, precious metals and vintage cars etc may also be allowed, but professional advice should be sought before purchase. More complicated financial vehicles such as warrants and derivatives also require special advice.

Interestingly, in certain situations if you currently own your business’s commercial property, then the SMSF can buy the property from you under a Limited Recourse Borrowing Arrangement at market value, then you rent it back from the fund. This may mean lower tax on rental income and eventual capital gains tax on sale, compared with holding the property outside of super.

There are many very specific rules and regulations for assets held within an SMSF. For instance, if an investment benefits you at all now, instead of after retirement, then it is unlikely to be allowed in your SMSF. Please seek professional advice as penalties can be serious. Don’t just assume you can make your holiday house a part of your SMSF.

Examples where you may breach superannuation investment rules include:

1. Expensive artworks that are held as an investment inside your SMSF cannot be kept hanging on your walls at home, but instead must be stored in a reputable art storage facility and must also be insured.
2. Staying in an investment property, or allowing friends or relatives to stay in the property, is also a big no-no if that property is held within an SMSF.
3. Market value must be paid for everything held within an SMSF, meaning all transactions must occur at arm’s length. You can’t make a purchase from a family member at mate’s rates. If it is difficult to avoid such a clash, please seek professional advice.

If you wish to discuss SMSF diversification further, please contact our expert and award winning SMSF advisors. 

Call (02) 4926 2300 or email us here at Leenane Templeton.

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