Investors ask: How much super do I need?

By Clayton Daniel

Q. I want to purchase an overseas property to rent out and would like to use my Cbus super to do it. How much super do I need to start an SMSF? When I last checked, I had over $80,000 – is that enough?

A. Self-managed super funds are the largest and fastest growing segment of the superannuation industry. People love the idea of controlling their own money, and I completely understand – super is where a majority of people hold most of their net wealth outside of their own home.

Since the global financial crisis, most people have become extremely sceptical about the concept of superannuation companies they don’t know anything about investing their money in investments they don’t know anything about – which leads us to this boom in SMSFs.

SMSFs give you the power, knowledge and responsibility of being in charge of your own financial destiny. It is such a compelling idea that questions such as yours have become the everyday life of financial advisers Australia-wide.

The simple tried and true answer to the question ‘how much do I need to start an SMSF?’ is, ‘a minimum of $200,000’. Some would suggest twice that number, but this amount is commonly agreed upon by many who deal with SMSFs every day. I read an occasional article aimed at investors saying it can be done with less, but they are always written by private companies selling their SMSF services.

Do I love SMSFs? Of course! It is by far the most interesting part of my job. In a perfect world, where everyone knows everything about law, taxation and investments, we would all have our own SMSF, but of course this isn’t the case.

And that’s why the minimum is $200,000. It simply costs too much to run an SMSF correctly unless you have this much capital behind you to pay for the accounting and advice.

So what do people do to get around paying for professional advice?

They pay an accountant to do their part, and perform the rest of the duties by themselves. As a result, the investment strategy usually involves simple investments such as cash deposits and a couple of blue-chip shares – and the tax strategy is non-existent. This makes having an SMSF redundant, as you can access these investments through retail funds with far less stress, time, and legal burden.

But then money is not a logical topic for most; it is emotional. And my opening argument around people wanting to have control of their finances often overrides the rational and safest option.

So if you want to open your own SMSF and invest 100 per cent of your money into the asset class of ‘global property’, I would strongly suggest you obtain the ongoing advice of a professional – and that costs money. If you don’t get advice, you could end up being one of the growing number of people every year who lose a significant amount of their balances to the government in penalties – just like that, and the government does not like the excuse ‘I didn’t know’.

Your future financial stability is a serious issue. It’s not just about money, but the freedom to pursue what you want out of life. If you look hard enough you will find a way to do what you want now.

Without more information about your financial situation, it’s difficult to comment further, but there is a range of options you can undertake now that are more appropriate to your level of investment.

Clients with balances around the $100,000 mark often look into platforms that allow access to a wide range of high quality investments, and then tax effectively contributes to the fund, with the aim of obtaining an SMSF in a few years. It is absolutely possible to do.

I’m certainly not trying to talk you out of it, but just make sure you do it correctly. Above all, I really respect your connection with your super money, and your desire to get the best outcome!

Clayton Daniel, principal adviser, Hillross Silverstone

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