In times of sharp stock market corrections and high levels of volatility I hear a lot of people asking if it’s a good idea to be setting up a SMSF so that they can invest their super in gold and term deposits.
To the average investor this seems like a valid strategy – stocks are losing value, gold prices are soaring and term deposits will guarantee their capital. To make this strategy even more valid (yet no less speculative) would be to adopt such a strategy when stocks are peaking and gold & term deposits have been forgotten…. But that’s a topic for another day.
Despite this not being a great form of portfolio construction due to lack of diversity, I find it more alarming that people are wanting to set up SMSF’s purely for a short-term punt on certain investments. Especially given that the setup of a SMSF has costs, which will detract from any short term investment gain.
Whilst investment flexibility is definitely an advantage of having a SMSF, there are a significant range of other benefits that a SMSF can provide. For one, the ability to manage your tax position and put in place tax-effective strategies will likely result in monetary benefits that far outweigh your less-probable ability to consistently provide greater investment returns. Not to mention the administrative efficiencies, estate planning opportunities and greater control of your retirement benefits.
The point I am trying to make here is that setting up a SMSF should be a decision for the long term (as should your investment choice) and based on reasons other than your short term outlook of the economy. I can’t recommend highly enough the need to sit down for an hour with someone who specialises in SMSF’s to discuss what you are wanting to achieve and what’s involved with running a Fund. There is a high degree of responsibility incurred by being a trustee of your superannuation, as well as initial and ongoing costs.
SMSF’s are powerful vehicles. Take the time to ensure that you are well informed, aware of your duties and fully prepared to take the wheel.
