I believe that Self Managed Super Funds (SMSFs) are absolutely fantastic vehicles for wealth building, asset protection, saving tax and looking after your family when you die.
However – they are not for everybody.
This article will look at the reasons why somebody simply shouldn’t have a SMSF. As you are reading, examine your own motivations for having a SMSF or wanting to set one up.
To death do us part:
A SMSF is like a marriage – it takes a significant commitment and a bit of hard work when required to make it run smoothly. If you are the type of person who doesn’t like to commit to things long term, then chances are a SMSF is not for you.
Be honest with yourself and look at your history – if you have previously jumped around between different jobs, businesses or even countries the chances are that an SMSF is not for you. With a SMSF you will have regular financial and time commitments to make it work effectively.
You need to spend the time to manage your investments and money to administer the fund.
Jump on the bandwagon:
Unfortunately in my time I have seen a lot of people who have been to the latest weekend ‘investment’ seminar and get caught up in the hype – whether it be on share trading, options, CFDs, currency trading/FOREX or property.
Come Monday morning they are calling their accountant to have a SMSF set up.
If you see your current superannuation savings as money you can easily access to start trading today and making millions tomorrow, chances are you are going to end up disappointed and left with an empty SMSF.
When it comes to any type of investing you need to educate yourself. Unfortunately for most people the education system and their upbringing does not provide them with a financial education.
You need to learn to walk before you can run. This means starting small with your own money (an amount you can afford to loose) and if you do OK gradually increase your commitment as your knowledge and experience grow. DO NOT pull $30k, $50k or $100k from your current super fund, assume you know all there is to know and use it to invest in the latest flavour of the month investment.
I am not putting myself forward as some financial guru who has all the answers. I also don’t have a problem with people going to investment seminars and educating themselves – I believe everybody can benefit from further financial education.
What I do say is based on experience. I have seen too many SMSF car crashes – in part it is the reason I write these articles – to help educate people.
Who stole the cookies?
An SMSF is great if you want to take control of your financial future by actively managing your investments under a long-term well considered investment strategy.
A SMSF is not so great if you are the type of person who can’t resist stealing the cookies from the cookie jar.
You need to be honest with yourself – if you have previously dipped into your savings account to buy that must have item, then chances are with the potentially significant amount of available funds in your SMSF you may be tempted again.
Worse still, if you are intentionally establishing an SMSF to early access to your superannuation savings before your retirement then a SMSF is not for you. Unless you enjoy fines of up to $220,000 and up to 5 years in jail.
These illegal early access schemes and their promoters are currently the bane of the ATO’s SMSF compliance department – and the ATO is throwing significant resources at the problem to stop it and if you read the papers and the ATOs press releases they are getting results.
If the thought of using your superannuation savings for anything other than your retirement has ever crossed your mind, then a SMSF is definitely not for you.
Summary:
An SMSF is a great vehicle for your wealth – but you need to ensure you are setting one up for the right reasons!
Take your time, educate yourself, talk to other people with SMSFs and talk to your accountant or financial adviser.