There is little point in starting a self managed super fund (SMSF) with less than $1 million in assets, according to Chant West principal Warren Chant.
The logic behind setting up a SMSF with $200,000 or less is “sheer nonsense” and there are only three reasons to set up a SMSF at all regardless of funds, Chant said at yesterday’s Association of Superannuation Funds of Australia (ASFA) lunch in Sydney.
The first is if a trustee genuinely likes picking shares and taking that form of hands on approach to managing their super.
The second is if a trustee is determined to own property, since you can’t have more than a certain percentage of your super invested in one asset.
“If you really like property [setting up a SMSF] is something you should do, because you can’t do it though any other vehicle and there are people who genuinely like investing in real property,” Chant said.
The third reason to set up a SMSF is if a trustee genuinely believes that there are estate planning advantages, which Chant said does not seem to be something that many financial planners promote.
“If you had a million dollars and were going to get a well diversified 70/30 portfolio, when you drill down it means you’ll be getting retail rates or mezzanine type rates, which is a lot more expensive than if you just took the million dollars and invested in First State Super, or invested in virtually any industry fund,” Chant said.
“There’s a very high proportion of [SMSFs] that would be $200k or less, and I think it’s a great shame.”
When a trustee retires at 65 they may like investing in shares but as time goes on, it is unlikely that 10 years later they would be interested in buying shares or picking managers, Chant said.
“I happen these days to have a DIY [do it yourself] because I have a property in it, but if I didn’t have the property I wouldn’t have a DIY,” he added.
