Why have a Self Managed Super Fund?

Not for higher investment returns …

There has been an above trend increase in the number of self managed super funds (“SMSF”) set up recently. Such spurts usually occur when investment returns have been poor. The expectation appears to be that better returns will be achieved with a self managed fund.

However, there is no clear link between investment performance and super fund structure i.e. self managed, industry, corporate or retail public offer. While industry fund advertisements suggest otherwise, their claims relate to the relatively higher costs of the alternatives. Before costs and taxes, no structure has any inherent investment performance advantage.

Five potential SMSF benefits …

But a SMSF offers at least five potential benefits over other super structures:
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“Timber”: Agribusiness Managers Felled

Diseased from the beginning …

Within a couple of weeks of each other in April and May, the two largest stock exchange listed managers of managed investment schemes (“MIS”), Timbercorp and Great Southern, went under. Most likely, shareholders will end up with nothing while creditors are almost certain to take a substantial haircut.

Timbercorp and Great Southern sold interests in agriculture based (or “agribusiness”) investment projects, particularly forestry plantations, to investors or “growers”.

While the “green” credentials of the projects were highlighted, the primary purchase motivation for investors was the large up-front tax benefits offered. The long term economic viability of the projects was always suspect, even more so now that their ongoing management is under a cloud.

Based on our wealth management principles, we think these projects and the decisions to invest in them were flawed from the start. It is a tragedy that there is now an estimated $6 billion of funds and 61,000 investors (see Footnote) caught up in a disaster that could have been avoided by applying a few tried and tested decision making fundamentals.
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Are home loan interest rates really low?

Lowest home loan rates in 50 years …

“Lowest home loan rates in 50 years” scream the headlines. Best time to borrow and buy property claim the real estate agents. With an increased home savings grant for first home buyers, it’s easy to believe that there will never be a better time for existing renters to stop paying “dead money” and buy their own home.

And many baby boomers, who created a lot of their wealth by jumping into the residential market in the 1970’s and early 1980’s, are probably now encouraging their children to take the plunge because it worked well for them.

But while home loan interest rates are “low”, the question that should be asked is “Are they “cheap”?”

Home loan interest rates are low but not cheap …
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