A Self-Managed Super Fund, or SMSF, is an attractive option for anyone that’s after greater control over their investment decisions.
An SMSF provides trustees with freedom and autonomy over their investments when compared with industry superfunds, and also provides a better perspective on how to manage retirement savings to get the biggest return.
But while the idea seems both enticing and straight forward, it is essential that you are aware of these common SMSF mistakes before taking the leap. Here are the 6 most common mistakes trustees make when starting their self-managed super fund journey:
Mistake #1: Not Properly Planning Setup Costs
The first and most common mistake that trustees make when it comes to starting up an SMSF is underestimating how much the fund setup will actually cost them.
While SMSFs have the potential to provide a great return, they also require both initial and ongoing investments in the ways of setup, accounting, auditing, advice and trustee company structure expenses.
The cost of setting up an SMSF can grow very quickly, which is something that must be planned for if your investment is going to be successful. When considering starting an SMSF, ensure you write down a list of known expenses to avoid blowing out your budget, and consult with an SMSF professional to ensure you aren’t caught off guard by any hidden costs.
Mistake #2: Not Planning for a Time Commitment
Setting up an SMSF is not a set-and-forget. It requires not only a financial investment, but an investment of your time and knowledge as well. It can be easy to overlook the time factor when starting a self-managed super fund.
Planning for your time commitment should include education and research, as well as investment management and handling of tax returns. These areas all need your time and attention if you wish for your SMSF be successful in the long term (why wouldn’t you!?).
Like any good seed planted, it needs to be nurtured to grow.
Mistake #3: Not Understanding Legal Responsibilities
Contrary to an industry fund, an SMSF comes with additional legal responsibilities that you otherwise would not have.
As a trustee, you must legally operate according to the rules of the SIS Act as well as your Trust Deed.
The rules and regulations that govern SMSF trustees may also be subject to change at any time, which means it is essential that you stay on top of industry updates. Ensuring you’re meeting your obligations and remaining compliant is arguably the most important aspect of being an SMSF trustee.
Mistake #4: Viewing the SMSF As a Way to Avoid Paying Taxes
Although there are tax advantages to setting up an SMSF, that doesn’t mean it’s a free ride.
You should never go into the endeavor for the sole purpose of not paying tax. As a trustee, you are still legally required to pay all applicable fees and taxes on the income you earn. It’s important that you are ensuring all income from the fund is being reported, and that your accountant or adviser is aware of these returns when it comes time to lodge your tax return or audit the fund.
Mistake #5: Not Establishing an Investment Strategy
It can take years to build capital, and you need a plan to make it work. You wouldn’t construct a building without a blueprint (or without a builder for that matter), and the same goes for your SMSF.
The best way to establish an (almost) foolproof investment strategy is by consulting with a SMSF specialist adviser. With the help of your adviser, make sure you plan out every step in the process as well as incorporating your future goals and tasks. This should be done in writing so you have a physical copy, and so it can be used as a reference when making investment decisions.
Mistake #6: Doing Nothing With Your SMSF
One of the biggest mistakes trustees make is doing nothing once the SMSF is set up.
As mentioned before, SMSFs are not set-and-forget. They require you to take on an active role as trustee if you want to be successful and grow your investment.
If it’s an effortless option that you are after, then an SMSF might not be the best choice for your circumstances. Luckily for you, our advisers hold a wealth of knowledge and experience no matter what kind of investment experience you’re after.
Ready to go ahead? Or still not sure if SMSF is the right path for you? Connect with one of our SMSF specialist advisers today.
Be it SMSF, industry funds or alternative investments, our team makes it their mission to establish a financial plan that works best for your lifestyle.
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The material and contents provided in this publication are general and informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
