As an Australian, you have the opportunity to have your own Self-Managed Super Fund, also known as SMSF. But why should you have one? First of all, there are excellent reasons why the SMSF investment strategy is the best for you. Here’s what they are.
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A superannuation fund, otherwise known as a self-managed superannuation fund (SMSF), allows Australians to invest retirement savings in stocks, bonds and property. There are several advantages of investing through an SMSF that makes it attractive to many Australians. Firstly, investors can build wealth faster than other investments because contributions into an SMSF aren’t taxed while they accumulate. The significant additional benefit of using an SMSF is that while income tax does apply to profits made on investments sold within an SMSF, there are multiple ways to minimise your tax payable. It’s also easy to manage an SMSF once set up—most banks offer everything you need under one umbrella.
Approved Deposit Fund
The Approved Deposit Fund (ADF) allows you to invest up to $150,000 into various financial products and bank accounts, including term deposits, savings accounts, shares or bonds. The investments can earn a higher rate of return than super or traditional investments such as property. If any funds remain after five years in your fund, they may be withdrawn from your account. However, any money withdrawn from an approved deposit fund must be within 10 years of retirement. If you have a large amount in your fund that will not be used in that time frame, it would be advisable to find a low-risk product that has a better return on investment over time.
Self-Managed Super Fund
A Self-Managed Super Fund (SMSF) is a particular type of superannuation account. To be a part of a Self-Managed Super Fund, one must have a trust deed. The money in an SMSF can only be invested in assets approved by ASIC and must meet specific criteria set out by law. This means that those investing through an SMSF may not be able to support as they would like and may even need to de-risk their portfolios as they get older. By establishing your own Self-Managed Super Fund now, there’s less chance that your decisions about what funds or shares to purchase later on will be impacted by age-related factors such as limited choice and health issues.
There are a number of different types of superannuation funds, but none have as much potential as the SMSF investment strategy. In a recent study, Australians had only about 70% of them at retirement balance. Many factors play into your final account balance at retirement, including work history and how early or late you begin investing. If someone were to invest in a regular super fund today without considering early contributions or contribution strategies, it would be impossible to know what kind of growth they would experience over 20 years. A self-managed super fund offers maximum growth potential due to being able to invest in property and other assets that your traditional super fund simply can’t invest in.
By investing in stocks, fixed interest investments, debentures and other securities through your SMSF, you can earn income that will not be taxed as it comes out of your fund, thanks to superannuation rules. It also provides flexibility – if you need some of your savings to pay off debt or cover health care costs that Medicare doesn’t cover, then a Super Fund can help. This contrasts with an aged pension and annuity options where any money withdrawn is taxed at marginal rates and may lose its tax-free status if taken before retirement age.