Given that most superannuation funds house investors’ money in a range of shares, both internationally and domestically, there is risk involved for those now edging closer to retirement.
As the world has just witnessed, the share market reacted to the news that the Covid 19 pandemic had swept the world, wiping out the gains made in more recent years to virtually nothing.
This is not a new phenomenon and those entering retirement in the next few years are rightly very concerned about their retirement nest eggs if their money is sitting in shares.
Reality is that many may need to scrap their retirement plans and keep working for several more years to recoup the losses in their superannuation account or until the share market rallies to provide them with the same returns as pre Covid times.
If this is you, there are questions that you’re probably asking yourself right now:
- Is there another way to safeguard and even build my retirement fund so that it’s not exposed to the volatility of the share market?
- How can I get greater control of my assets in my super fund?
- How can I diversify (not just within shares) in my super fund?
Looking into whether a SMSF is right for you (or not) may be the first step to answering those questions. Advice and the set up of a SMSF needs to be done by an experienced and qualified accountant or financial planner who will ask questions around your personal and financial circumstances as well as your risk profile to determine what will work best for you. This step is crucial.
If you decide after receiving advice that a SMSF set up is right for you, the next step is to decide what you can put into the fund. Of course, you can put other investments into your SMSF but many choose to purchase a property as part of their retirement plan. Property as an asset vehicle is less volatile than shares ( as shown historically) and provides capital growth over time.
One things to be aware of is that SMSF loans are set at a higher rate than a regular investment or owner occupied loan and at the moment are around 5.6%-6%. The reason for the higher interest rate is that they are classified as a ‘non recourse’ loan and the lenders view them as carrying more risk ( for the bank).
To put an investment property into a SMSF is a particularly important consideration as you are needing this investment to deliver an outcome that is more reliable than shares. The focus on positive cash flow properties with strong capital growth estimates, held over a period of at least 10 years generally provide investors with consistent, diversified returns.
Disclaimer: This Blog is not to be considered advice. Get your own professional SMSF advice before making any investment decisions.)
You can watch our recent Webinar on SMSF Loans and Property here.