The truth is out there - 5 DIY Super myths
Anyone who has ever thought about establishing a self-managed super fund (SMSF), otherwise known as DIY Super, has probably had to navigate through a maze of fact, fiction, hearsay and speculation. Let’s face it, unless you do this for a living (and you might!), then it can be difficult to sort out the wheat from the chaff.
Fact vs Fiction
There’s been a lot of misinformation over the years about DIY Super that range from half-correct to totally wrong. The Australian Tax Office published "Self-managed superannuation funds: A statistical overview 2009-10". This report highlights some of the key statistics on DIY Super, and in the process helps us break down some of these myths.
You can download a copy here: http://www.ato.gov.au/content/00316375.htm
What is DIY Super?
Also known as a self-managed super fund (SMSF), it allows you control over your Super investments as a way of planning for your retirement. It performs the same role as a managed Superannuation fund, but in the case of DIY Super, the members are also the trustees – you control the investment decisions of your contributions. As trustees, you are also responsible to run your fund within the law and report to the Australian Tax Office.
The growth of DIY Super:
Nigel Compton is a Senior Financial Planner with Commonwealth Financial Planning, and has over 15 years’ experience servicing clients with DIY Super Funds.
“There has been an increasing popularity of SMSF over the last few years. According to ‘Self-managed superannuation funds: A statistical overview 2009-10’ there are around 456,000 SMSFs and $418 billion in assets, with approximately 867,000 members in the SMSF sector. Clients like the idea of being in control of their Super, and having an active role in investing their funds for their retirement.”
Five myths about DIY Super
The DIY Super sector is a strong and growing opportunity which is outperforming more traditional retail funds. Here are five misconceptions about DIY Super that you should know:
Myth 1: Retail Funds outperform DIY Super
Says Compton, “Depending on the underlying assets of the fund, DIY Super can experience the same levels of volatility as retail funds. However, statistically, these types of funds tend to be invested in cash and/or Term Deposit options. As such, if you compared returns over the GFC (Global Financial Crisis), we often find them performing better than some retail funds with exposure with growth assets such as shares.
Myth 2: SMSF’s are hard to run.
That’s not the opinion of Compton, “They’re not necessarily hard, but there are some rules and regulations that need to be adhered to. Keeping good records is essential, and the help of an Accountant or Administration company that understands these requirements is essential. I also recommend seeking advice from professionals if you’re unsure of any aspect of running your own SMSF”.
Myth 3: You need to be earning a fortune.
Whilst the average income of a DIY Super trustee is higher than those in a traditional retail super fund, the income range is broad. The important thing is how much super you need to get started, which is around $200,000.
Myth 4: DIY Super Assets are all residential
It has been argued that apart from cash reserves, DIY Super funds are used to buy residential property on the cheap.
However, according to ‘Self-managed superannuation funds: A statistical overview 2009-10’, on average, only 3.6 per cent of assets are classified under residential property, while commercial property takes up 11 per cent of portfolios.
Myth 5: That DIY Super sector is small
According to ‘Self-managed superannuation funds: A statistical overview 2009-10’ this is not the case: “The SMSF sector remained the largest sector of the Australian superannuation industry, with 99% of the number of funds and 31% of the $1.34 trillion total super assets as at 30 June 2011.”
Even with the volatile global financial environment throughout this time, DIY Super continued to build in size.
Part of a bigger picture
Compton sees this as part of a bigger picture, “DIY Super provides investors with control and flexibility over their investments. The assets you can hold within the Fund can complement assets held outside of the Superannuation environment”
You can find out more about DIY Super by speaking with your accountant, the Australian Tax Office, or the team at Commonwealth Bank. Click here.
The Australian Tax Office
Important Information: As this information has been prepared without considering your objectives, financial situation or needs, you should, before acting on this information, consider its appropriateness to your circumstances. As individual circumstances differ, you should seek professional advice. Commonwealth Bank of Australia ABN 48 123 123 124.