When it comes to managing your own Self-Managed Super Fund it can be a bit tricky especially in volatile times. Navigating the highs and lows with the help of an expert can make sure you’re taking the right step forward, but if you don’t have an expert on hand, then a little helping hand can make a big difference to your nest egg.
Here are 7 tips to ensure your SMSF is successful in 2016.
1. Make sure you have a written investment strategy that’s reviewed at least annually. Of all the slip-ups I witness daily this is by far the most common. Most of the funds don’t have adequate investment strategies. Your investment strategy should be quite specific and while ranges of asset allocations may be acceptable, 0 to100 per cent cash, 0 to100 per cent Australian shares etc is not. Be specific and make sure the investment strategy is suitable to all members of the fund including younger spouses or adult children who’s investment goals may be different from a retiree, for example.
2. Don’t mix your personal assets with your super funds assets. The sole purpose test suggests that the sole purpose of superannuation is to save for retirement. If you receive a personal benefit prior to attaining a condition of release then there may well be a serious compliance breech The Australian Taxation Office dislikes early release schemes and there have been some jailings over such schemes in the recent past so tread judiciously.
3. Here’s seven in one! Make sure your fund is compliant – ensure your trust deed is up to date, your tax returns are submitted on time, get an audit (an actuarial certificate if needed), make sure your binding death nominations are up to date (or reversionary), contribution caps in line with laws and minimum pensions drawn if in pension mode. I probably don’t need to elaborate on any of these but never forget that you are in control of your fund not your administrator. If in doubt, read your trustee declaration. Yes, you’ve signed one!
4. Don’t panic and make rash decisions in the face of volatility. Oh dear! This is a classic. I had a client call last week wanting to take the 20 per cent dip on the ASX this year and convert to cash. Now that’s a great way to crystallise losses and reduce your income all in one simple powerful hit. Admittedly, I don’t have a crystal ball and there’s no guarantees in life but the world is getting used to higher interest rates in the United States and a slowing resources sector. Its unlikely to last forever and there’s plenty of green in portfolios still. By all means assess your asset allocation as you should do regularly but I’ll never forget the client who cashed out at the height of the global financial crisis when the market was 3100. Don’t be that guy (or gal)!
5. Don’t jump into property because the sharemarket’s down. A common mistake is to see the stars in the eyes of property investors who think they are very clever having received a 40 per cent return in Sydney in the past 18 months. They too don’t have a crystal ball but you can bet your bottom dollar that if the sharemarket gets this then the property is just a few months behind. You see sharemarkets are instant and property markets, while illiquid, take a while to correct. The writing is already on the wall with a major fall in auction clearance rates – watch this space!
6. Learn as much as you can – education is always beneficial. The ato.gov.au website now has a series of free online videos about SMSFs that are designed to help you better understand your SMSF or potential SMSF. Its free and you’re bonkers if you don’t go on there and have a look to see what you don’t know. As Donald Rumsfeld once said, “… But there are also unknown unknowns. There are things we don’t know we don’t know.” Don’t be like Donald!
7. Seek professional advice. Who knows these so-called professionals may actually be helpful, assuming they’re all back from their Aspen skiing trips by now. Satire aside, although true, professional advice is all about gleaning value and if you have a problem then you may need help. If you don’t understand, its so important to ask questions. On my Thursday weekly Sky Business show, Your Money Your Call, I always say that there’s never a silly question when it comes to your own money. I’ve been saying it for years and stand by it.