Superannuation 101

Discussion in 'Open Discussion' started by exceladdict, Jan 14, 2017.

  1. exceladdict

    exceladdict Established Member

    Mar 26, 2014
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    To the financial minds of AFF: the time has come where Mrs Excel & I need to think seriously about superannuation. Until now it's been retail funds and/or funds with defensive low/no cost options.

    With decades to go before I'll be able to touch it, we've been advised to look towards moderate-high risk options. I'm a relatively hands-on type of person who has a spreadsheet for everything, so I don't mind a bit of work, but equally don't want to go in blind.

    My questions are:

    1. Taking in to account all factors you think are important (and feel free to discuss what they are), what investment strategy would you choose? I.e. 30% cash, 20% local shares, 20% int'l shares hedged against the AUD, 20% Aus fixed interest assets, 10% Aus listed property, etc.

    2. Are there any retail or industry funds you recommend and why?

    3. At what point is a SMSF worth considering?

    Any advice greatly appreciated.
     
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  2. Jeffrey O'Neill

    Jeffrey O'Neill Established Member

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    i started running my own SMSF about 5 years ago using esuperfund. find them very good to deal with and quite cheap.

    esuperfund will cost you $799 for the annual audit, then there's a $259 ATO annual fee as well.

    Apart from those fees you can keep most other fees quite low. I've got about $250K in my SMSF and have mostly bonds + ETFs and a MER of about 0.69%.

    The beauty of an SMSF is you have a relatively fixed cost base. Most super funds just charge you more and more as your balance increases.

    I suggest going the extra expense of setting up a corporate trustee as it makes management much easier over the long run.

    I'm following an investment rule of roughly your age = % allocated to bonds. as you get older you have less time to recover from market down turns.

    i recommend fiig.com.au if you'd like to have direct ownership of various corporate bonds. you can get some some inflation linked bonds in your account that provide around 4% + CPI.
     
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  3. Pushka

    Pushka Enthusiast

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    We've been running our own superfund for over 20 years and never looked back. It's great to make your own decisions as long as you do the research. Our best investment was a block of land that returned over 100% gain in 18 months. Shares were great until the GFC and later dips but are picking up well now.
     
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  4. amaroo

    amaroo Senior Member

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    $250K ... or you work in the trade (keep cost down) .... or you want to do some property investment.
     
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  5. knasty

    knasty Active Member

    Mar 11, 2010
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    Do people with an SMSF still keep some nominal money in retail/industry fund to access insurance? From my research death/TPD through the larger industry funds is waay cheaper than other direct options.
     


  6. Pushka

    Pushka Enthusiast

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    Yes. We did. Has about $1000 more than the insurance deductions. And is paid by the ATO superguarantee process that is now compulsory.
     
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  7. cove

    cove Enthusiast

    Apr 15, 2010
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    Esuper really suited us. However not everyone has been in the investing market for about 50 years.
    If you have no investment experience I would say don't go SMSF until you do.
    I changed over when I stopped working 60 plus hours a week so I had the time to make a good plan and that has really been sweet for us. That was about 5 years ago. Our fund grew by more than 4 times in this 5 year period as we invested in non speculative shares and securities.
    I am careful who I talk to about SMSF as many would not be good at it.
     
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  8. Mogul

    Mogul Member

    Feb 22, 2010
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    With the long term uncertainty in regards to what changes will happen to superannuation, we have invested outside of super so we can retire when we want to and not when the Government of the day says we can.
     
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  9. Jeffrey O'Neill

    Jeffrey O'Neill Established Member

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    i'm the same way. only compulsory contributions with deferred consumption funding investments outside super.
     
  10. cove

    cove Enthusiast

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    One of our medical friends has gone with Esuper and he has figured most of it. His questions are not that difficult to answer and he has saved about $10,000 in accounting and audit by doing it himself with Esuper.
    A colleague has north of $10 million in his fund for two so he has to adjust things later in this financial year.
    We wish each parliament would stop screwing around with the rules but it is too much money for a Government to leave alone.
    The anti detriment rule change was mostly unreported and that sliced some money off beneficiary pay outs.
     
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  11. Pushka

    Pushka Enthusiast

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    The superannuation money bucket proves far too tempting for the pollies. Just wish they would tinker properly with their own war chest of goodies.
     
  12. burmans

    burmans Senior Member

    Feb 21, 2006
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    Even if you have more than 1.6M in your super, its still only going to be taxed at 15% which in my view is still a tax advantaged rate! I do agree with the stuffing around bit, but frankly don't really see how people having 10M in a fund and paying no tax was ever going to stand up to scrutiny, so think we've been lucky while we've had it.
     
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  13. exceladdict

    exceladdict Established Member

    Mar 26, 2014
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    Thanks so much everyone for the responses so far. It sounds like my balance (and level of skill) is too low for an SMSF at this stage.

    However to get me there - are there any retail/industry funds, or asset classes, that members would recommend investing in given the medium term economic climate?

    My current fund has a small number of defined options, all with a ~1% fee, where you can set your own percentages i.e. local/overseas shares, local/overseas fixed interest (hedged or unheged to AUD) or the option to invest directly into any of the ASX300, with an annual fee for that option plus brokerage fees per transaction.

    Very open to swapping funds at this stage.
     
  14. cove

    cove Enthusiast

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    burmans my colleague did quite well with 2 shares that went up a lot.
    We have stopped contributing as we have to pay a 30% contribution rate. Our investments have performed sweetly over the few years we have run it ourselves.
    Many would struggle in the stock market and no one gets it right all of the time.
     
  15. serfty

    Moderator

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    Until you get to that $250K, something like ING living super may an idea.

    They don't have a fee per se, but they do make you keep the greater of $500 or 1% in a "cash hub" which returns interest at .45% off the Govt. Cash rate. This is capped at $10K.

    So the cost is ~half of 1 percent.

    On a $150K balance, that's $7 PA.
     
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  16. Pushka

    Pushka Enthusiast

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    10 million in super - can only imagine.
     
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  17. voulez

    voulez Newbie

    Jan 22, 2015
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    #17 voulez, Jan 17, 2017
    Last edited: Jan 17, 2017
    Hi OP, few things for you to consider (as mentioned by other posters):
    1. Benefit of investing in super vs outside. N/a if you’re referring to existing balance but if you’re looking to contribute more into super, worthwhile comparing tax benefits vs access issues, etc.

    2. Level of involvement in your super/ investments. If you’re paying higher fees, you’d expect to have to do less. E.g., your asset allocation query has at least two solutions: a) you deciding on your own asset mix which is likely the cheapest option but will require you to monitor and make investment decisions when to get into/ out of an asset class; or b) invest in a multi-asset/ pre-mix option e.g. a Balanced fund where the manager decides on the mix for you.

    3. Your risk profile and appetite. Most individuals will have their super locked away until their 65[SUP]th[/SUP] birthday so for a 40 year old, that’s a 25-year investment time frame in which case why invest in cash/ bonds at this stage except for diversification purposes? To give you an idea, AustralianSuper’s most aggressive investment option, High Growth, has a recommended investment time frame of 12+ years and a 6% total allocation to cash + bonds. Within each asset class, you have the option of diversified (e.g. invest in a passive fund that holds all ASX 300 stocks, or a portfolio of 100 properties) which will be cheaper than a concentrated option (invest in 10 stocks, or buy a single investment property); the latter is riskier with potentially higher returns.

    4. Your fee appetite. While fees are an important factor, it’s equally important to look at returns net of fees i.e. some fees are worth paying for (active management, better managers, etc.)

    5. Insurance. Very important to sort this out prior to cancelling/ upgrading existing ones, especially for individuals who have existing conditions. Most insurance-related scandals relate to inappropriately insurance cancellations.

    6. Retail vs industry funds. Broadly speaking, I’d rate the largest five industry funds on par with the Big 4 banks and AMP-owned retail funds. IMO the key difference is industry funds have very strong inflows which allow them to invest in large, illiquid assets (e.g. AustralianSuper acquiring Ausgrid) which have strong returns but these funds remain relatively uncompetitive. The retail funds attract much better talent but investment decisions are influenced by varying in/outflows (i.e. can’t be as “long term” as the industry funds).

    7. Lastly, re SMSFs – I think there’re quite a few who underestimate the effort required, and/ or overestimate their ability to achieve better after-fee outcomes. The median Balanced super fund returned 9.42% pa over the last five years (Superratings) – that’s net of fees and doesn’t require you to lift a finger.

    All in all, the info above is selective so worthwhile speaking to a planner (although most will be affiliated with some fund). Hope that helps!
     
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  18. Buzzard

    Buzzard Established Member

    Jan 22, 2013
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    What about what is known as an SMSF Lite fund such as Choiceplus (provider is Hostplus)

    Basically an SMSF Lite fund allows you to invest part of your super balance directly into shares that you choose yourself.
    You don't get lumped with all the compliance, paperwork and legal hassles of running your own SMSF.

    Other than Hostplus, SMSF Lite are also run by funds such as Cbus, Australian Super, Legalsuper and others.

    If it was me I would go with Hostplus. You could even have a second Hostplus account, say the Hostplus Indexed Balanced Fund.

    Just be wary of advisors that want to push you into their own product or want to fleece you in fees and charges that could otherwise be growing your investment.
     
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  19. exceladdict

    exceladdict Established Member

    Mar 26, 2014
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    At this stage of life I don't have signifcant tax benefits from investing in to super, and I've been putting excess income into an offset account to minimise interest costs on my mortgage. I'm mainly looking at my existing balance and compulsory contributions - am I doing this right?

    Thanks for the feedback (and to other posters as well) - agree in that I'm really looking for non-biased advice where people aren't trying to sell me something (thus why I love this forum). I didn't consider how super ownership of infrastructure might impact the security / reliability of those providers (but I guess for people in super as an income phase of life, that would be good?).

    The "SMSF Lite" option, similar to an ad I've seen floating around facebook about a fund that allows you to invest directly in apple, etc (spaceship super or something like that) interests me but I'm wary that the fees - and my limited knowledge of financial markets - would significantly skew the risk vs reward.
     
  20. serfty

    Moderator

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    Note that this allows for your own share trading if that is you desire (Base fee of $300 per year), term deposits, balanced funds (default or you specify the mix).
     

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