Managing Your Own Superannuation- Good Idea Or A Risk?
Superannuation is a very hot topic in the financial markets of the world. Super is one of the world’s biggest investment markets. The Great Financial Crisis in 2008 was a major catalyst in creating the controversy regarding DIY superannuation. Many experts felt that the conventional super funds performed very poorly, and were charging people for losing their money.
Self managing superannuation- The positives
These are the arguments which are strongly in favor of self managed superannuation:
· If you’re very highly mobile in your employment market, employer superannuation probably isn’t a good option. You could wind up with multiple small super investments.
· If you’re in business for yourself, self managed super is one of the only two options. You can take out a super policy with an insurer, or self manage.
· If you’re a professional, self managed super is often an excellent approach to managing your income.
· Self managed super can be extremely tax effective, and help with financial planning.
· Self management means no charges from fund managers. That can add up to a lot of money, particularly if you’re putting big money into your fund.
The risks
The other side of the self management approach must be well understood. There are real risks, and some of them aren’t at all obvious:
- Investment professionals often have difficulty investing in the volatile modern markets. For amateur investors, almost any kind of investment can be tough going, particularly during the setup stage and when the markets have setbacks.
- Staying on target with an investment plan isn’t easy. If you miss the target, you can find yourself with a lot of catching up to do, and not enough capital when you need it.
- Committing money to superannuation may tie it up for years. Over commitment and under commitment can both create real problems.
- Tax obligations on superannuation (annual tax is payable) can come as a nasty shock if you’re not properly set up to manage it. Some investors quite innocently don’t manage their tax properly, and find themselves with years of back taxes payable. That can put quite a hole in the nest egg.
- Ignorance is not an option in self managed superannuation. Investment models in self managed super can vary from excellent to abysmal. You really do need to be well educated in best investment practices and have a thorough understanding of everything involved.
- When you set up a self managed super fund, you take on a lot of statutory obligations as the trustee of the fund, including the statutory obligations for proper, documented financial management. This is absolute bottom line management, and doing it all yourself can include the risk of mistakes.
DIY super is a big decision. Too big, in fact, to be left to chance. The best decision, in fact, is don’t make a decision at all, until you’ve got some training and education in self managing super.
This is absolutely essential. Self managing super is like running a business, in several ways, and like running a business, you need to speak the language and understand the concepts before you can do it properly.
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Tags: Guest Post, Personal finance, Superannuation
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