Have you ever opened your superannuation statements with confusion? What investments do I own? What rate of return am I achieving? More importantly – how can my money be going backwards?
If you have answered yes to one of these questions, rest assured you are not alone!
Over the last five years SMSF’s have grown in number from 410,000 to nearly 520,000 today and are worth approximately 515 billion dollars. This may not seem significant but considering SMSF’s have been around for over 30 years the increase in the last five years is dramatic.
It has recently been reported by the ATO that SMSF’s have outperformed large funds in four of the last six years. So how is it that the ordinary person can achieve this result?
Here’s the secret. There are strategies that can be used in an SMSF not available to other superannuation funds which can have significant results.
1. Franking Credits
An attractive feature of Australian listed shares is the benefit of franking credit refunds.
When an SMSF member moves to pension mode, all capital gains and investment income becomes TAX FREE. This essentially means the SMSF is able to obtain a full refund for the value of the franking credits which means many SMSF members enjoy a refund cheque from the ATO every year.
In pooled super funds, any franking credits attached to investments are pooled into the fund and spread across members, meaning pension members get a lesser return than they would with an SMSF.
2. Managing Capital Gains Tax
There is a general desire for capital gains to be minimised in order to reduce the liability of capital gains tax. With an SMSF, you’re able to pick and choose which parcel of shares to dispose of in the SMSF Annual Return. This will enable those parcels with a higher cost base to be disposed off and the lower cost base to be retained until the fund is in pension mode and in a zero tax environment. This picking and choosing is not able to be done in a larger fund.
3. You are in control
You decide when and how to invest your retirement savings. You can tailor your portfolio to suit your specific situation. You can respond swiftly to changes in market conditions – making the most of buy/sell opportunities without the red tape other super providers incur.
These are just some of the simple techniques that enable an SMSF to achieve fantastic results. It’s no wonder with the flexibility, control and transparency that an SMSF has to offer that people are out-performing the alternative.
After all, no one is ever going to be as interested in your financial well being as you!