Written by Robin Bowerman, Head of Corporate Affairs at Vanguard/Board Director of the SMSF Association
Given that self-managed super funds (SMSFs) hold more than half of the retirement dollars in super, it is easy to assume that self-managed super is dominated by older members. Not so.
In reality, a high proportion of investors establishing SMSFs are middle-aged or younger. And it seems that the average age of new SMSF members is getting younger.
The tax office’s latest quarterly SMSF report shows that more than 15 per cent of investors who established SMSFs in the March quarter of 2019 were aged under 34, while a third were aged 35-44.
Indeed, 35-44 is the peak age group, by far, for establishing a self-managed fund.
Further, 80 per cent of investors who established SMSFs in the latest March quarter were under 54. And the 2019 Vanguard/Investment Trends SMSF Report notes that SMSFs are being established at lower average ages in recent years.
Other tax office statistics indicate that the age range of SMSF members – no matter whether the funds have existed for many years or setup in recent months – is widely distributed. At June 2018, 65 per cent of SMSF members were under 65.
A key financial decision for many fund members is whether to switch from a large APRA-regulated fund to an SMSF. Even the strongest advocates of self-managed super would agree that SMSFs are not for everyone – regardless of age.
Before setting up an SMSF
Some of the things to consider when deciding whether to setup an SMSF include:
- Super balances: Unavoidable costs of running an SMSF can handicap the returns of low-balance funds. Are your super savings large enough for an SMSF to be financially viable or should you wait for a few more years until your savings are higher?
- Knowledge: Do you have enough knowledge about sound investment practices and the legal obligations of SMSF trustees? And are you willing to take specialist professional advice when needed? (Considerations here include trustee duties, investment risks, likely returns, liquidity, investment diversity, risks of inadequate diversity and investment selection.)
- Time: Are you willing to set aside the time necessary for running an SMSF? Most SMSF trustees receive at least some professional assistance, ranging from fund administration to full financial planning.
Creating a new SMSF portfolio
A fundamental task for new SMSFs is, of course, to create an investment portfolio in accordance with their chosen asset allocation. (A diversified portfolio’s asset allocation – the proportions of its total assets that are invested in different asset classes of mainly local and overseas shares, property, fixed interest and cash – spreads risks and opportunities.)
More SMSFs are taking a “core-satellite” approach to the creation of their portfolios. With this approach, the core of a portfolio is held in low-cost traditional index funds or ETFs tracking selected indices with smaller “satellites” of favoured directly-held investments (such as shares) and/or actively-managed funds.
The 2019 Vanguard/Investment Trends SMSF Report shows that of the estimated 393,000 investors holding ETFs in April this year, almost a third were SMSFs.