How to run your own successful Super Fund

[Panaman]

Hello, first post after just reading for a few months.

iam not an experienced investor but have done some reading and research and now seriously thinking I could easily run my own superfund, so any advise or tips from those who run there own fund would be good.

I would like to use a firm like esuperfund to run everything, they are low cost and from reading this forum and other online searches most reviews are very positive, they however don’t give advice and you must use there partners for investments and bank account but from what they offer I cant see any problem with this.

I want to keep things simple and use etf investments and take a long term view as I still have about 20 years to retirement so thought if I allocate 50% to shares, 40% to fixed interest and 10% to property, would this be a good suggested mix?, ive really just looked at were super funds invest and simplified it, I will also salary sacrifice and have my employer contributions paid into a bank account and each year buy the percentage allocation to the investments, so for example half will be spent on adding to the share holding etc, I don’t want to be trading in and out of the market, iam not experienced at that nor do I think it necessary to achieve a comfortable return, good investments over time even through crisis can average over 8 to 10% a year and if I can get that I will be happy, my current AMP superfund even doing very well the past 12 months has come no were near that.

For shares I thought I would use an index fund (Vanguard ASX 300 etf) and a listed share fund(Argo investments), this will give me a spread over all the top 300 companies.

For cash/fixed interest I will again split this in half, with a 6 month rolling term deposit and an investment in the Vanguard Australian fixed interest index etf.

For property I would invest in a property etf, although I have not decided which one as it looks like most invest in property trusts which I would most likely be holding anyway through the shares etf and Argo so any suggestions here would be good.

Is this doable and in the opinion of those who have run there own funds, outperform the big retail funds?, and lastly any other suggestions as to were to invest?

 

[ROE]

It is possible to run your own fund and get very good return, I have SMSF and invest fully in the market
having said that, it been heavily promoted that everyone can do it, the truth is most cant...

you need sound knowledge of the markets and its mechanics and be able to make your own decision based on your judgement and knowledge.

you got to be able to distinguish fear/greed from fictions and facts

Like anything in order to beat other you got to have qualities other don't have or make better judgement and pick stocks selection better etc.

I don't think it so hard that most cant do it, it just takes time, certain personalities and your willingness
to learn and research.

 

[Muschu]

. We are semi retired and have had a SMSF for about 5 years. It can be time consuming but I use an online analyst to support decision making. I pay for this but it has been worth it and better than the uninformed financial advisor I used previously.
I am also quite a conservative investor ... Probably as I am 68.

 

[Julia]

I don’t want to be trading in and out of the market, iam not experienced at that nor do I think it necessary to achieve a comfortable return, good investments over time even through crisis can average over 8 to 10% a year and if I can get that I will be happy, my current AMP superfund even doing very well the past 12 months has come no were near that.

Can you say, given that you have told us you are inexperienced, why you think you will be able to achieve a better result than that achieved by professional fund managers, eg as above AMP.

The above question does not reflect any comment on any public fund, none of which I have any experience of or interest in. Just suggesting you should be realistic about what returns you can expect as a novice.

 

[Panaman]

Hi Julie, and yes I understand what your saying, and no doubt the big Super funds would laugh at a novice in Western Sydney trying to outperform them with his own Superfund, but until I started doing some investigation I quickly started to change my mind and the more I read and investigate this the more iam convinced anyone could do it with just basic knowledge, last week I discovered there are diversified funds which look almost identical to super funds in how they invest but the fees for example with the vanguard funds are just 0.35%, yet over the last 10 years many have hit that 8-10% average annual return verses the 3-5% Super funds have managed.

For me this is becoming a no brainer, rather than try and allocate your super just put it all in a good diversified fund that has a history of delivering good returns with low fees, 5 easy steps and your set.

1) Open an account with say Esupefund, free set up then $700 a year
2) Transfer all your super to the ANZ account they set up for you
3) Invest in a diversified fund like the Vanguard Growth fund
4) Have employer contributions and salary sacrifice deposited in the ANZ account
5) Set up a periodic payment each month from ANZ to Vanguard fund

 

[Kaizen]

Hi Julie, and yes I understand what your saying, and no doubt the big Super funds would laugh at a novice in Western Sydney trying to outperform them with his own Superfund, but until I started doing some investigation I quickly started to change my mind and the more I read and investigate this the more iam convinced anyone could do it with just basic knowledge, last week I discovered there are diversified funds which look almost identical to super funds in how they invest but the fees for example with the vanguard funds are just 0.35%, yet over the last 10 years many have hit that 8-10% average annual return verses the 3-5% Super funds have managed.

For me this is becoming a no brainer, rather than try and allocate your super just put it all in a good diversified fund that has a history of delivering good returns with low fees, 5 easy steps and your set.

1) Open an account with say Esupefund, free set up then $700 a year
2) Transfer all your super to the ANZ account they set up for you
3) Invest in a diversified fund like the Vanguard Growth fund
4) Have employer contributions and salary sacrifice deposited in the ANZ account
5) Set up a periodic payment each month from ANZ to Vanguard fund

Sounds like what most super funds do anyway. Why not avoid all the paper work and leave it as is use a platform that allows you to do that. I have an IOOF fund and I can buy and sell shares but do not worry about the admin.

 

[Panaman]

Sounds like what most super funds do anyway. Why not avoid all the paper work and leave it as is use a platform that allows you to do that. I have an IOOF fund and I can buy and sell shares but do not worry about the admin.

Thanks for that, I never had a clue this sort of thing was available, will spend a few hours investigating this.

 

[Bill M]

Thanks for that, I never had a clue this sort of thing was available, will spend a few hours investigating this.

Panaman, there are a few super funds that allow you to make your own investments and they do all the compliance and reporting. To me they are like having a SMSF but without you having to do the compliance.

I am with ING Living Super. I can invest in cash and term deposits without fees. I can also buy shares, ETF's and funds like Vanguard. I can do all the allocation myself without a great deal of interference from ING. For me to buy and sell my own ETF's or shares they will charge me only $180 per year (plus per parcel brokerage). It is not bad, no $700 per year fees. There are some restrictions but from what it sounds like it might suit you.

Have a look here: http://www.ingdirect.com.au/super_and_retirement/living_super.htm

 

[craft]

Does anybody know if these superannuation share trading platforms keep individualised account of deferred capital gains tax?

Is it accounted for as per how a SMSF would do it or how a traditional collective super fund does it?

Probably doesn’t matter for anybody over 60 but could have big (yet obscure) implications for those in accumulation phase especially as they turn 60.

 

[Ves]

Is it accounted for as per how a SMSF would do it or how a traditional collective super fund does it?

AustralianSuper at least does it closer to how a traditional super fund does it, rather than like an SMSF (where you pay upon lodgment of your return and PAYG Instalments as you go if applicable).

The MemberDirect option from AustralianSuper deducts any tax applicable on the day that income is received. Therefore the cash outflow for tax is upfront, which could be considered as an important timing difference vs an SMSF. Taxable contributions are treated in the same way. However, it seems that you receive franking credits up front, which could compensate for other timing differences.

CGT is even more opaque vs an SMSF. Realised gains / losses are treated as tax credits and an adjustment (cash in / out flow is made each quarter) by the looks of it.

The unrealised CGT... I'm not sure what to make of it. They deduct any applicable tax from the portfolio valuation, but I am not sure it that means they actually make a cash adjustment each quarter. You would think that they wouldn't.

The big advantage (tailwind) that long-term investors get from deferred tax liabilities in an individual holding or SMSF is taken away if they make cash adjustments for the tax on unrealised gains. Perhaps someone else who actually has one of these accounts could answer?

http://www.australiansuper.com/~/media/Files/Guides/MemberDirect_Guide.ashx

 

[So_Cynical]

CGT is even more opaque vs an SMSF. Realised gains / losses are treated as tax credits and an adjustment (cash in / out flow is made each quarter) by the looks of it.

I have noticed how Members direct keeps a certain untouchable amount in your transaction account..and noticed how this builds as you close trades, seem to be some sort of tax provisioning. :dunno:

 

[Julia]

Re the various alternatives to a SMSF, do they also undertake responsibility for keeping you informed of, or organising, any legislative or administrative requirements throughout the year?

eg if you were in pension phase do they advise you of the amount you are required to draw during the coming f/y?

Do they do Minutes and Investment Strategy, and if so, in how much detail? Advise you when your Trust Deed needs to be updated and arrange this for you?

 

[Ves]

Re the various alternatives to a SMSF, do they also undertake responsibility for keeping you informed of, or organising, any legislative or administrative requirements throughout the year?

eg if you were in pension phase do they advise you of the amount you are required to draw during the coming f/y?

Do they do Minutes and Investment Strategy, and if so, in how much detail? Advise you when your Trust Deed needs to be updated and arrange this for you?

The answer to most of these questions comes from looking at the difference in ownership / trustee structure compared to a SMSF.

In a self-managed account (SMA) / direct investment option that is housed within an Industry or Retail Fund it is the Fund (well, it's nominated reponsible entity) itself is the trustee - and has the ultimate responsibility of complying with any legislation or administrative requirements in that role. The Fund itself files all of the paperwork / documentation - the member has no responsibility for it. Without being a legal expert myself, I assume that as the responsible entity they have the legal ownership of all of the underlying assets, and the members have a beneficial entitlement to them. There is no legislative requirement for a member to prepare an investment strategy or minutes if they are a member of an Industry / Retail Fund. There is obviously nothing stopping you from doing this, and it may be a good habit to get into for most people and you can certainly still receive financial advice from a licensed professional if you so wish. However the responsible entity as trustee can, and does, enforce certain investment restrictions (such as limiting to ASX300, minimum bank account balances etc etc) that are mostly designed to a) cover their own **** and b) help provide the most cost effective operation.

Within an Industry / Retail Fund I believe that pension payments are automated (direct debit) and are usually paid on a monthly basis to ensure that members take at least the minimum pension. For for information most of the large funds will outline this in their financial services guide or product disclosure statement.

Tl;dr - the Industry / Retail Fund is required to prepare all of the administration and paperwork because they are the responsible entit by law.

SMSF is obviously different because the members and the directors / trustees are the same people.

 

[Julia]

The answer to most of these questions comes from looking at the difference in ownership / trustee structure compared to a SMSF.

Sorry. My question was misleading because of the omission of a few words. It should have read:

Re the various alternatives to a SMSF using one's own accountant, do they also undertake responsibility for keeping you informed of, or organising, any legislative or administrative requirements throughout the year?

eg if you were in pension phase do they advise you of the amount you are required to draw during the coming f/y?

Do they do Minutes and Investment Strategy, and if so, in how much detail? Advise you when your Trust Deed needs to be updated and arrange this for you?

What I'm curious about is - given one wants to run one's own SMSF, there seem to be the options of using your own accountant or one of the el cheapo options like Esuperfund, which I understand offers initial set up and then annual tax return and audit.

Are we comparing like with like, eg as in my questions above?

The responsibilities of running a SMSF should not be under estimated. I depend on my accountant to keep me up to date with everything I need to know and to answer any queries I might have throughout the year without being billed additionally for this.
It's somewhat difficult to imagine that the 'one size fits all' model is going to be able to take into account all individual circumstances and offer individual advice for the price.

 

[ROE]

Sorry. My question was misleading because of the omission of a few words. It should have read:


What I'm curious about is - given one wants to run one's own SMSF, there seem to be the options of using your own accountant or one of the el cheapo options like Esuperfund, which I understand offers initial set up and then annual tax return and audit.

Are we comparing like with like, eg as in my questions above?

The responsibilities of running a SMSF should not be under estimated. I depend on my accountant to keep me up to date with everything I need to know and to answer any queries I might have throughout the year without being billed additionally for this.
It's somewhat difficult to imagine that the 'one size fits all' model is going to be able to take into account all individual circumstances and offer individual advice for the price.

I have my own accountant and auditor and dont use cheapo online one like esuperfund
too much hassle if you operate outside their fix structure, like banks account, brokers and what instruments to use

having my own accountant I am 100% free to do what I like, use any platform, bank accounts, instruments etc...
its not actually that hard once you nail the paperwork habit..

basically my auditor wont sign off until each transaction is account for and I have documents supporting it...
so as soon as a transaction is executed via my SMSF I file the paperwork/record...

I buy stocks today, download contracts, print and file
I sell a couple of options, download contracts, print, file
Print banks statement each month, file
Print dividend statement as soon as I received them, file etc...etc...

end of the year all there....accountant check, auditor check, done

 

[Ves]

Are we comparing like with like, eg as in my questions above?

According to their website (http://www.esuperfund.com.au) the answer to your questions would be yes. I haven't actually had any experience with dealing with them - so I'm just going on what I have read.

You obviously get what you pay for - but there is no reason that you cannot leave Esuperfund if you aren't happy with their service / restrictions.

 

[Panaman]

Seems a lot I have learnt from this so far so thank you, need to decide if I should have my own fund or use the likes of IOOF or ING.

Can I ask those who run there own funds how they do so? As iam still deciding to either go with a good managed fund like Vanguard or allocate myself, that is if you want exposure to property for example how do you get that, through direct ownership that is you buy real estate via your fund, or are there funds or stockmarket etfs that can be used?

With shares, do you invest for the long term or trade in and out of shares or use the etf,s, then for fixed interest, is it term deposits or etf,s, I can see you can buy bonds but the minimum is very high, (50K), how else can you get exposure to this sector.

 

[Julia]

Panaman: my suggestion would be for you to get some professional advice, given the sort of questions you're asking. What some of us do in terms of how we invest in our SMSFs will be driven by our personal circumstances and isn't necessarily relevant to what would be best for you.

The reason most people start their own SMSF is to take control over every aspect of their investments, and because they believe they have the competence and experience to achieve a superior result. They don't want to outsource the choice about how their funds are invested to some fund manager.

 

[ROE]

Seems a lot I have learnt from this so far so thank you, need to decide if I should have my own fund or use the likes of IOOF or ING.

Can I ask those who run there own funds how they do so? As iam still deciding to either go with a good managed fund like Vanguard or allocate myself, that is if you want exposure to property for example how do you get that, through direct ownership that is you buy real estate via your fund, or are there funds or stockmarket etfs that can be used?

With shares, do you invest for the long term or trade in and out of shares or use the etf,s, then for fixed interest, is it term deposits or etf,s, I can see you can buy bonds but the minimum is very high, (50K), how else can you get exposure to this sector.

I have direct ownership of shares because I like to invest in stuff I want and discard the rest
rather than throw in the index/efts with the good and the bad....

I also use other instruments such as Options, CFDs, Warrants to enhance return
my cash usually sit at call account (earning ~1% or so above RBA rate)

I don't know when I need the cash as opportunity can presented at any time so locked them in
term deposit is a no go zone for me...

 

[Panaman]

Panaman: my suggestion would be for you to get some professional advice, given the sort of questions you're asking. What some of us do in terms of how we invest in our SMSFs will be driven by our personal circumstances and isn't necessarily relevant to what would be best for you.

I have seen a financial advisor, all they did was want me to transfer my Super from AMP to them, when I asked how there funds had performed over the last 10 years he had to look it all up and then waffled on about the financial crises and so 4.5% PA was pretty good considering, when I said I was considering running my own superfund he was almost smirking and said similar to you that I should leave these things to the professionals, well the professionals don’t seem to have done a very good job in my opinion, a simple investment in an stock index etf and left for 10 years beats them hands down.

All iam trying to do is find out how people invest n different sectors and what sort of products they use, shares are pretty straight forward but fixed interest and property is not apart from term deposits or investing in property trusts, iam not asking anyone to tell me exactly what they do, as you say everyone’s situation is different..

Iam not rushing into this but cannot see why anyone even a tradesman in Western Sydney with no university degree cant do this themselves and do better with some well researched and quality and proven investments than the big supefunds who milk our account with fees and charges, even in the good years they have performance fees to take more from your account, pity they don’t have underperformance clauses were they reimburse you, think most would have gone out of business if they had.