The beauty of a self-managed super fund (SMSF) is in your ability to control your investment. But with great power comes great responsibility, and the burden on you to make the right decisions matter as it will impact your gain. As you are responsible for managing your SMSF, you will need to ensure that your investments match your goals and objectives.
Here are some smart approaches to investing in your SMSF.
Greater access to investment options
With an SMSF, you have the advantage of investing in options that aren’t available to industry or retail funds. This gives you the power to invest in what you are most comfortable with – which is a strategy that you should follow always.
Operating an SMSF requires a deeper knowledge than a managed fund. The more industry specific experience you have, the better – which is why consulting with an investment adviser is always recommended.
How to invest your SMSF
Before deciding where to invest your SMSF, you need to determine your investment objectives. Generally, the objective is to have enough money for a comfortable retirement without running out of cash. Additional objectives include having enough money to take regular holidays, or being able to pass the wealth onto the next generation.
For example, if your objective is to generate $50,000 annually from your SMSF, exclusively for spending money, you will need to find investments that are able to generate this level of return. You will have to weigh the risks against the returns, and feel comfortable to accept them.
Working with a professional investment consultant can help you determine your investment preferences and identify your objectives and expectations.
Where to invest your SMSF
The most common SMSF investment options include:
- Cash
- Term deposits
- Shares (both local and international)
- Property (both commercial and residential)
- Exchange traded funds
- Managed funds
- Fixed interest securities
- Hybrids
- Alternative investments (for example gold or hedge funds)
- Business investments
Due to the versatility of an SMSF, you may even be able to indulge in your hobbies by investing in specialties such as collectibles or artwork. After all, the more you know about a specific investment, the better.
Restrictions of SMSF investments
There are no legislations that lay out what an SMSF cannot invest in. There are, however, restrictions on the entities an SMSF can acquire assets from or invest in.
For example, an SMSF is not allowed to:
- Engage in arm’s-length investments
- Acquire assets from a related party
- Borrow money unless in specific situations
An SMSF investment strategy
If you are looking to generate income to fund your lifestyle, you will typically consider investments in dividends or interests which provide stable and regular payments. These assets generally are slow growth, but are a source of steady income.
To preserve capital, you will want to invest in low risk options. This will mean lower returns, but the reward is a decreased risk meaning more stable income.
The best way to find the right investments for your SMSF is to consult a professional. That way, you can ensure that your investment profile is in line with your financial objectives.
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