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Managing Your Self Managed Super Fund

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Careful management of your SMSF is essential to ensuring healthy superannuation savings.

For many Australians, super is one of the biggest investments, if not the biggest investment, they will ever have. That’s why most people keep their super money in professionally managed super funds. However, as we learnt in the article The SMSF dilemma – Link to Monday’s article some people want the hands-on control that comes with a self-managed super fund. Of course, with added control comes added responsibility and workload.

Self-managed super funds can be suitable for people with a lot of super and extensive skills in financial and legal matters. You must be prepared to research and track your super investments regularly if you want to manage it yourself. Super is your investment for your retirement, so don’t rush in.

One of your key responsibilities as a trustee is managing your fund’s investments. Your investment decisions should be designed to protect and increase your members’ benefits for retirement.

Your investment strategy

The first place to start when managing your SMSF is to have a written investment strategy. This sets out your fund’s investment objectives and how you plan to achieve them. It takes into account the personal circumstances of all the fund members, including their age and risk tolerance.  Your investment strategy will help you maintain the right mix of investments for your fund and its members.

Your investment strategy provides you and the other trustees with a framework for making investment decisions to increase members’ benefits for their retirement. It should be in writing so you can show your investment decisions comply with it and the super laws

When preparing your investment strategy, you need to consider:

  • diversification (investing in a range of assets and asset classes)
  • the risk and likely return from investments, to maximise member returns
  • the liquidity of fund’s assets (how easily they can be converted to cash to meet fund expenses)
  • the fund’s ability to pay benefits when members retire and other costs the fund incurs the members’ needs and circumstances (for example, their age and retirement needs).

Restrictions on investments

Being a trustee of an SMSF gives you the flexibility to choose the investments for your fund, but there are some restrictions on how you invest and what you can invest in. Make your investments on a commercial, ‘arm’s length’ basis and don’t buy assets from, or lend money to, fund members (or other related parties). Generally, your fund can’t borrow money.

Ownership and protection of assets

You need to manage your fund’s investments separately from the personal or business investments of members, including yourself. This includes ensuring that the fund has clear ownership of its investment assets.

The sole purpose test

The fund’s investments are for the sole purpose of providing retirement benefits to members – there can’t be any pre-retirement benefits to members or related parties (such as letting members use an investment asset).

Investing in collectables and personal use assets

From 1 July 2011, all collectables and personal use assets purchased by SMSFs will have to comply with tightened legislative standards.

For more information on the new legislative standards, refer to New regulations for self-managed super fund investments.

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