{"id":40950,"date":"2013-08-13T23:05:58","date_gmt":"2013-08-14T03:05:58","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=40950"},"modified":"2013-08-13T23:05:58","modified_gmt":"2013-08-14T03:05:58","slug":"take-control-of-your-superannuation-but-know-the-limits","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/08\/13\/take-control-of-your-superannuation-but-know-the-limits\/","title":{"rendered":"Take Control of Your Superannuation, but Know the Limits"},"content":{"rendered":"

By MoneyMorning.com.au<\/u><\/a> <\/p>\n

\n

‘I have a very strict gun control policy: if there’s a gun around, I want to be in control of it.<\/em>‘ – Clint Eastwood <\/p>\n<\/blockquote>\n

If Dirty Harry read the recent research on the growth and projected growth of self-managed superannuation <\/strong>funds (SMSFs), he would conclude when it comes to super, investors ‘want to be in control of it<\/em>‘.<\/p>\n

It would be interesting to conduct a study to identify the main driver behind the huge growth of self-managed super funds<\/strong>.<\/p>\n

Perhaps it’s a push back to the growing government control over our lives. So that where possible we’re subconsciously taking back control from government and corporations.<\/p>\n

Or perhaps it’s just a case of not trusting anyone else to manage your retirement capital. Or maybe it’s about lower fees and more investment flexibility.<\/p>\n

Whatever the reasons, the recently published research from the SMSF Professionals Association and Macquarie Bank conclusively shows the popularity among Australians of gaining self-control of their financial future.<\/p>\n

As of March 2013 there were 503,320 SMSFs. This is a 7.3% increase over the past twelve months (700 new funds every week).<\/p>\n

Just shy of one million members are in these funds and they control around $500 billion (half a trillion). That’s an average of $1 million per fund (approx. $500,000 per member).<\/p>\n

Due to fixed cost fees (as opposed to percentage based fees), SMSFs are more attractive (cost wise) for those with large super account balances. Paying fixed audit and accounting fees of $3,000 is a far less percentage on $1 million than it is on $10,000.<\/p>\n

<\/p>\n

A Big Trend in the Market<\/h2>\n<\/p>\n

The most interesting thing about the SMSF<\/strong> Professionals Association and Macquarie Bank report are those looking to establish their own fund over the next three years.<\/p>\n

Firstly the report stated:<\/p>\n

\n

‘That growth seems likely to continue. Macquarie research reveals that one in 12 Australian adults says they plan to open an SMSF in the next three years, equal to around 1.4 million people. If they were to act on those plans, the total number of SMSF members would more than double.<\/em>‘<\/p>\n<\/blockquote>\n

Doubling of members in the next three years? This is a big trend. But you’ll be surprised where a good portion of those new members will come from. It’s not baby boomers.<\/p>\n

<\/a>
\nClick to enlarge<\/a><\/em><\/div>\n<\/p>\n

Gen X & Y (the more tech savvy generations) are lining up to take control.<\/p>\n

Look at Gen Y’s (typically those born in the early 1980′s to early 2000′s) surge in recently (green bar) established funds.<\/p>\n

This trend among those aged between 30 and 50 (straddling both X & Y) may have something to do with their confidence that ‘Google’ can provide whatever information they need to manage their own affairs.<\/p>\n

Irrespective of the possible drivers, one thing is clear: well-heeled members with access to information want control over their retirement capital.<\/p>\n

But a worrying trend is the increase in small funds borrowing to invest in real estate<\/a>. A number of reports indicate Australia has some of the most expensive real estate (on a multiple of average salary) in the world.<\/p>\n

Lower interest rates may push house prices higher, but this only pushes property values further into the danger zone. Everything, including interest rates<\/a>, ultimately returns to the mean, and when they do this will adversely affect property prices.<\/p>\n

SMSFs that have borrowed (possibly over-borrowed) to invest in a single purpose asset are flirting with real danger.<\/p>\n

The other danger sign from this trend is what it means for institutional super funds. The majors like Colonial, BT, and MLC must have a little sweat on the brow.<\/p>\n

How do they stop the exodus of their larger valued clients, the ones they make their cream from? A client with $5,000 invested pays a lot less fees (due to the percentage fee basis) than a $500,000 client. Yet they both receive the same quarterly statement, the same asset allocation decisions and regular newsletters.<\/p>\n

In effect, the $500,000 client subsidises services for those with lesser values.<\/p>\n

The institutions will have to re-think their service offering in order to remain competitive and relevant when compared to the cost and flexibility of SMSFs.<\/p>\n

<\/p>\n

The Test SMSFs Must Pass<\/h2>\n

\n<\/p>\n

But with control comes responsibility. I suspect the ATO will be more watchful in its duties to ensure SMSFs don’t abuse their new found freedom.<\/p>\n

Trustees of SMSFs<\/strong> should remember the guiding principle behind their investment decisions is the Sole Purpose Test. Here’s a reminder of what that is (courtesy of www.superguide.com.au):<\/p>\n

\n

‘Sole purpose test is a test that ensures a superannuation fund is maintained for the purpose of providing benefits to its members upon their retirement (or attainment of a certain age), or for beneficiaries if a member dies. If a super fund trustee, a super fund member or relative enjoys a direct or indirect benefit before retirement from a super fund’s investment, that is, more than an incidental or insignificant benefit, then it is probable that the super fund has breached the sole purpose test.<\/em>‘ <\/p>\n<\/blockquote>\n

For trustees and would-be trustees my advice is to err on the side of caution and stay away from the ‘exotic’ stuff.<\/p>\n

Well reasoned investments in quality shares, fixed interest, cash, property and precious metals should be the asset base for SMSFs. Obviously the allocation to these asset classes will depend on age, risk profile and experience.<\/p>\n

Stay away from the exotic or edgy stuff – art works, collectibles etc. That’s unless you have specific expertise and diligent administration to justify dabbling in these areas.<\/p>\n

Remember, the last thing a trustee wants to hear is the ATO saying, ‘Go ahead, make my day!’<\/p>\n

Vern Gowdie
\n Editor, Gowdie Family Wealth<\/em><\/strong><\/p>\n

\nJoin Money Morning on Google+ <\/u><\/a><\/strong><\/p>\n<\/p>\n

From the Archives…<\/em><\/strong><\/p>\n

Should You Still Buy Stocks Here? Yes, but…<\/a>
\n 09-08-2013 – Kris Sayce <\/p>\n

The Secret to China’s $7 Billion Milk Market<\/a>
\n08-08-2013 – Nick Hubble <\/p>\n

RBA (Retirees Below Average)<\/a>
\n07-08-2013 – Vern Gowdie <\/p>\n

Have Australian Stocks Broken Free from China?<\/a>
\n06-08-2013 – Kris Sayce<\/p>\n

When Should You Sell Your ‘Loser’ Stocks?<\/a>
\n05-08-2013 – Kris Sayce<\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au ‘I have a very strict gun control policy: if there’s a gun around, I want to be in control of it.‘ – Clint Eastwood If Dirty Harry read the recent research on the growth and projected growth of self-managed superannuation funds (SMSFs), he would conclude when it comes to super, investors ‘want to … <\/p>\n

Continue reading “Take Control of Your Superannuation, but Know the Limits”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-40950","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/40950","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=40950"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/40950\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=40950"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=40950"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=40950"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}