Christine St Anne: It's no secret that SMSFs have outperformed. Today, I'm joined by SuperGuardian's Olivia Long to give some of the reasons behind their performance.
1. Franking credits
Olivia Long: One of the key benefits of running your own super is the ability to customize your investment portfolio to suit your individual specific needs, not just invest for the average.
So, if you're in pension mode, just as an example, you can construct your portfolio, so that you take the full benefit of the value of the franking credits attached to some of the underlying assets that you hold in your fund, something that's not normally available to all other superannuation options.
Basically, once a member moves into pension mode, their superannuation balance becomes entirely tax-free. So where those members then invest in direct shares that have franking credits attached to them, you can actually get to a position where the ATO sends you a refund check every year.
2. Capital gains tax
With a self-managed fund, you can manage your capital gains tax down to each individual parcel of shares, which means at the end of the day, you're maximizing your returns on each individual investment.
3. Ability to transfer assets
Okay. So, for people who have existing assets in their own personal names, given the SMSF is one of the most tax-effective investment vehicles for the longer term, there is an ability to transfer in your assets from yourselves personally to the superannuation fund.
So, for example, if you are holding direct shares in your personal name, you can transfer them in way of what's called an in-specie contribution and move it into your super fund by way of a contribution. The same goes for commercial or business real property, being able to be transferred into your super.
Borrowing is a recent benefit available only to self-managed super funds. Essentially, you can borrow money to boost your retirement savings, whether you then choose to invest that in direct shares or property. Either way, it's an opportunity to leverage within your super fund.
5. Flexible pension planning
SMSFs are the most flexible vehicle when it comes to pension planning. Given that you can move from accumulation mode to pension mode and back to accumulation mode if need be, without the need to sell the actual underlying assets like you do with other retail funds, which means you don't then incur the capital gains tax on each of those transactions every time you want to consolidate a pension or rebalance or maximize your strategy.
If you've got a $100,000 within your super fund, essentially you can be better off from a cost perspective to transfer that balance to an SMSF, depending, of course, on where you're getting the administration done or what your costs are operating at.
Control is definitely, I'd say, the key benefit in running your super fund, because at the end of the day you call all the shots, which means, you decide when to buy or sell, so you can react far more swiftly to changes in the investment market than the fund managers; you decide if you're happy with your returns. If you're not happy with your investment advisor, you can switch advisors simply and/or seek the advice of many. And at the end of the day, with control comes a level of engagement, where you're looking at your superannuation regularly, making sure you're happy with its performance and monitoring it and at the end of the day, you're likely to have a better outcome.