Where should I invest my SMSF?

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where should I invest my SMSF?
Self Managed Superannuation
By
John Liston
John Liston
Director | Adviser
December 1, 2019
6
minute read

We outline some common approaches to investing your SMSF, and how you can go about seeking advice to do so

One of the biggest benefits of investing via a self-managed super fund is the ability to gain greater control over where your money is invested.

As the name implies, you’re the one managing your SMSF, so you’re able to ensure that where you’re investing your funds matches your goals and objectives. You get access to investment options that aren’t available to retail or industry funds—but the onus is on you to invest in the way you’re comfortable with.

Operating your SMSF requires a deeper level of knowledge than a managed fund. If you are looking at where to invest for your SMSF, we recommend consulting an investment adviser. They will work with you to determine your investment preferences, and ensure your investments meet your retirement objectives.

Liston Newton SMSF advisers can help you determine your appetite for investment, and develop a strategy that will see your money invested wisely. Contact us today to discuss your SMSF investment options.

How to invest your SMSF

Before you decide where to invest your SMSF, it’s important to determine your investment objectives first. Most people want to ensure they have enough money available for a comfortable retirement, and that they aren’t going to outlive their assets (otherwise known as running out of money).

They may want enough money to take regular holidays, or build up their SMSF so they can pass wealth on to the next generation.

Clarifying your investment objective

Knowing your objective is important, as this informs the type of investments you’ll make. Once we understand what you’re looking to achieve, we can then break this down into the annual income you’ll need to live this lifestyle, and the annual return of the SMSF required to achieve this.

For example, your objective may be to generate $100,000 per year from your SMSF, purely for spending money.

To achieve this, it’s a matter of finding investments that are best suited to generating this level of return. You must also weigh up the amount of risk associated with this type of investment, and ensure you’re comfortable to accept this.

Questions to determine your investment preferences

To understand your objectives, we ask you a number of other questions to further reinforce your objective. We’ll ask you about:

  • Your knowledge, experience, and history with investments
  • Your level of comfort with different investments
  • If you have a specific preference for investment
smsf goals

The most common SMSF investments

When using an industry or retail super fund you’re limited to where your fund directs your investments. But with an SMSF, your options for investment are practically limitless (within reason, of course). A common question we receive is 'Where should I invest my SMSF?'

Here are some of the most common SMSF investment options:

  • Cash
  • Term deposits
  • Australian or international shares
  • Exchange traded funds
  • Fixed interest securities
  • Hybrids
  • Managed funds
  • Property, both residential and commercial
  • Alternative investments such as gold or hedge funds
  • Business investments

With an SMSF there is even the potential to indulge in your hobbies, by investing in things like collectables, or artwork.

SMSF investment restrictions

Superannuation law doesn’t specifically state what an SMSF can’t invest in. However, there are restrictions in place on the types of entities a fund can invest in or acquire assets from.

For examples, SMSFs are not allowed to:

  • Allow in-house assets, such as an investment, loan, or lease of a fund asset, to exceed 5% of its total assets
  • Acquire assets from a party related to the fund
  • Borrow money, unless in specific circumstances

Changing your SMSF investment strategy

In life, it’s only natural that your priorities and objectives change as you get older. Similarly, so too should your SMSF investment objectives.

When you’re younger, your focus is typically on generating wealth, so you may have more of a growth strategy in place. As you don’t have as much wealth to lose, and more time to accumulate funds, you’re more willing to take on greater levels of risk.

When approaching retirement you’re consolidating your wealth, and your focus may be on generating a steady income, thus allowing you to spend money.

Post retirement, and into your 70s and 80s, your focus will be on capital preservation and ensuring you have enough wealth to pass on to the next generation.

To ensure your objectives remain in line with your life stage, your SMSF investment strategy should be documented each year. This ensures you have a clear roadmap to follow, and you can ensure your investments align with the needs of the SMSF members.

Once you’ve determined this, it’s a matter of buying and selling, to make sure your investments match your objectives.

Discussing SMSF investments with our clients

discussing smsf with clients

At Liston Newton Advisory we understand that every client has unique investment goals. However, there are three key considerations we will typically factor into your SMSF strategy:

Growing capital

If you’re looking for long-term investments, or aiming to build an inheritance for future generations, capital growth is crucial. These types of assets will provide a greater return than a more defensive option, but they come with a higher level of volatility and potential for loss.

Generating income

If your aim is to fund your lifestyle, then you’ll typically consider investing in assets like interest or dividends that provide stable, regular payments. These asset types generally see little growth, but provide a steady income for the fund, and are a key component in diversifying your portfolio.

Preserving capital

When you reach retirement age and you stop working, your goal may be to preserve the wealth you’ve accumulated. This can be achieved by investing in low-risk options. These typically provide lower returns, but this is outweighed by their decreased risk.

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