Some simple SMSF Facts

Those that retired around the global financial crisis saw retirement savings decimated. Many trusted big fund to manage their savings, and mitigate the risk of any such crash. Unfortunately for some this saw a reluctant return to the workforce or a part pension despite years of hard work.

This has driven a number of people towards a SMSF. Being in control allows you to decide your level of risk and exposure while giving you the chance to choose what companies you want to support, or suburbs you want to invest in.

At this point, you probably want to understand what a SMFS is, if it is right for you, and hear all this in plain English. Today we are going to focus on the basics, while moving forward I will tell you about some of the specifics.

Your fund can have up to 4 people, the more people the less burden of mandatory reporting on your savings. Just be careful when choosing who to enter into a SMSF with, as members can’t be forced out, or forced to stay, and dispute resolution can end up in court. Collectively you will need to devise an investment strategy, level of risk and any ethical (or unethical) investments. It is important to go in with a clear strategy and some ground rules for risk and strategy. Furthermore, have a water tight exit strategy!

Still interested? Well here are some quick facts worth considering!

  • For those funds with a balance between $0.5m and $1.0m operate with an average expense ratio of 1.34% (for example, a balance of $0.5m on average costs about $6,700 a year to run). It is important to remember that in addition to this, you will need to dedicate a lot of hours into running a successful fund.
  • The ATO has advised that 62% of funds operate at estimated expense ratio of 1.5% or less. While 48% operate with an expense ratio of 1% or less.
  • The most efficient 4% of funds have an operating expense ratio of 0.5% (for example, a balance of $0.5m cost about $2,500 a year to run).

While you might want to rush out and stick it to the man, it is worth consulting a financial professional to work out the specific pros and cons for establishing a SMFS. And of course knowledge is power, so read up and be informed. You are never too young (or old) to take control of your savings and start making the calls to safeguard your early retirement.