Key Considerations for Your SMSF Investment Strategy
So your SMSF Administrator/Accountant now has to use an Independent Auditor and abruptly you are being asked for more than just the 1 page SMSF Retirement Investment Planning Strategy outline is given by the Accountant that you used to sign devoid of filling in the blanks and without taking into consideration its purpose.
The motive behind an Investment strategy is required by an SMSF and also required to be reviewed regularly is that personal situations changes as do markets and economies. You need to take into consideration your investment portfolio in the light of these changes and this is a method of prompting you to do so as part of the annual review.
Each year we practice a lot of market and political instability with contradictory views on where the economy is headed, foremost to a subsequent impact on share and property markets.
1) SMSF Investment Strategy Requirements
According to Craig Day, Executive Manager Technical Services at Colonial First State, trustees of SMSFs are obligatory to consider a number of problems when generating an investment strategy for their fund. These contain the investment returns the trustees want to generate compared to the level of investment jeopardy they are willing to go through.
Other problems are also essential to believe including the level of diversification of the fund’s assets, the liquidity of those assets and the capability of the fund to pay advantages and cover operating cost as they fall due.
“There are no pre-decided stages of risk and return or diversification SMSF investment strategies are needed to have,” says Day. “But the trustees are likely to be able to reveal they have considered these elements.”
If we think further, Day adds: “It’s also important to realize that investment strategies are not set and forget and must be reviewed on at least an annual basis or whenever the fund’s circumstances change.
"For example, a trustee should review their fund’s investment strategy whenever a member retires and commences an account based pension as the fund may now have different risk/return, liquidity, and cash flow requirements.”
However, probably the most essential thing about investment strategies is to not just see them as a compliance obligation. Middle age financial planning can help in future. Young couple financial planning is also a good idea for the future.
2) Avoid Sector Bias
The Big 4 Banks, Woolworths and Telstra do not create a diversified portfolio! Once you have decided which asset categories to invest in, it is important to diversify within those asset categories. Often I see investment portfolios with a fine range of large Australian organization just like mentioned above providing very meager diversification – and leaving the overall investment portfolio heavily dependent on the fortunes of one or two sectors. Set up SMSF in Sydney for the advantage of manage without the readiness to take recommendation or learn about portfolio design, frequently lack diversification with an over-reliance on one property, Australian shares and/or hard cash. Control comes with a responsibility to be trained and adapt.
3) Tax Efficiency
Frequently the spur to look at complex and structured investments near June 30th is the tax consideration. The amount of tax you pay on investment has a major effect on your SMSF investment strategy. Here are the tax basics for SMSFs:
15% tax on income and capital gains on assets held for less than 12 months in the accumulation stage
10% tax on Capital Gains on assets held for greater than 12 months in the accumulation stage
0% tax on income and capital gains on assets sold in pension stage
For instance, if you were fortunate enough to have bought 1000 CBA shares during the GFC at $30 and sell them now at $90 in accumulation phase you will pay $6,000 in tax with a net profit of $54,000. While if you were lucky to move into pension phase you be given the full $60,000 tax-free. Tax is an important concern and considerate of the tax impacts which you purchase your asset in and the tax payable when you dispose of the asset, are very essential but should not be the sole driver of your SMSF investment strategy.
The motive behind an Investment strategy is required by an SMSF and also required to be reviewed regularly is that personal situations changes as do markets and economies. You need to take into consideration your investment portfolio in the light of these changes and this is a method of prompting you to do so as part of the annual review.
Each year we practice a lot of market and political instability with contradictory views on where the economy is headed, foremost to a subsequent impact on share and property markets.
1) SMSF Investment Strategy Requirements
According to Craig Day, Executive Manager Technical Services at Colonial First State, trustees of SMSFs are obligatory to consider a number of problems when generating an investment strategy for their fund. These contain the investment returns the trustees want to generate compared to the level of investment jeopardy they are willing to go through.
Other problems are also essential to believe including the level of diversification of the fund’s assets, the liquidity of those assets and the capability of the fund to pay advantages and cover operating cost as they fall due.
“There are no pre-decided stages of risk and return or diversification SMSF investment strategies are needed to have,” says Day. “But the trustees are likely to be able to reveal they have considered these elements.”
If we think further, Day adds: “It’s also important to realize that investment strategies are not set and forget and must be reviewed on at least an annual basis or whenever the fund’s circumstances change.
"For example, a trustee should review their fund’s investment strategy whenever a member retires and commences an account based pension as the fund may now have different risk/return, liquidity, and cash flow requirements.”
However, probably the most essential thing about investment strategies is to not just see them as a compliance obligation. Middle age financial planning can help in future. Young couple financial planning is also a good idea for the future.
2) Avoid Sector Bias
The Big 4 Banks, Woolworths and Telstra do not create a diversified portfolio! Once you have decided which asset categories to invest in, it is important to diversify within those asset categories. Often I see investment portfolios with a fine range of large Australian organization just like mentioned above providing very meager diversification – and leaving the overall investment portfolio heavily dependent on the fortunes of one or two sectors. Set up SMSF in Sydney for the advantage of manage without the readiness to take recommendation or learn about portfolio design, frequently lack diversification with an over-reliance on one property, Australian shares and/or hard cash. Control comes with a responsibility to be trained and adapt.
3) Tax Efficiency
Frequently the spur to look at complex and structured investments near June 30th is the tax consideration. The amount of tax you pay on investment has a major effect on your SMSF investment strategy. Here are the tax basics for SMSFs:
15% tax on income and capital gains on assets held for less than 12 months in the accumulation stage
10% tax on Capital Gains on assets held for greater than 12 months in the accumulation stage
0% tax on income and capital gains on assets sold in pension stage
For instance, if you were fortunate enough to have bought 1000 CBA shares during the GFC at $30 and sell them now at $90 in accumulation phase you will pay $6,000 in tax with a net profit of $54,000. While if you were lucky to move into pension phase you be given the full $60,000 tax-free. Tax is an important concern and considerate of the tax impacts which you purchase your asset in and the tax payable when you dispose of the asset, are very essential but should not be the sole driver of your SMSF investment strategy.
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