Happy February everyone! I don't think "Happy New Year" sounds right anymore now that we are in February ... and where did January go already?
Anyway, year 2012 is in full swing and 2011 is over! We might have seen Aussie Cadel win the Tour de France in 2011 but it was a forgettable year for investors. This fact was reinforced with me just last week when my neighbour (one up and one across) called me to ask if he could catch up to discuss setting up a Self-Managed Super Fund. In case you were wondering, he called because it was 8pm, otherwise it would have been a chat on the front lawn. His primary reason for wanting to set up a Self-Managed Super Fund ..... Control.
When super fund returns are negative, the urge for control is understandable and perfectly rational. There are of course, a few things to know about Self-Managed Super Funds before jumping in the deep end. This article by Bina Brown in The Sydney Morning Herald does a good job of explaining what you should consider so I won't say it all again here.
What I do want to say about SMSFs is that the administration costs of having one can vary greatly. Often these costs are billed on an hourly rate and that means that the final bill can come as a surprise. We prefer a fixed fee service agreement and if you already have an SMSF or are thinking about one, take this as a suggestion: Speak with your accountant about setting a fee so that you know what you can expect to pay. As a guide, if you have less than ten investments in your fund and you transact infrequently, you should expect to pay no more than $2000 for the accounting and audit costs combined. How does this compare to the costs of a personal super fund I hear you ask. This would be equivalent to having around $350,000 - $400,000 in a personal super fund which means there are no real cost savings to have an SMSF for less than $400,000 but of course, there is that control factor. If you are disgruntled with your super fund return and you think an SMSF is the answer (just like my neighbour), just make sure you know what you are getting yourself into.... and consider how much your time is worth as well.
P.S. The Sydney Morning Herald article states "since 2007 that DIY funds could borrow to buy residential property. More recently, the ATO clarified that DIY funds could "value add" and increase the worth of a property through renovation..". As detailed in our News Update post in December, borrowed funds cannot be used for property improvements in an SMSF but can be used for repairs and maintenance. An SMSF can however use its own funds (not borrowed funds) for improvements.
Image: Salvatore Vuono / FreeDigitalPhotos.net