There are now roughly 600,000 SMSFs in Australia, each investing on average $1,000,000 within their fund.
These numbers continue to increase each year as more people elect to invest their own savings to take more control and provide an appropriate level of income in their retirement.
With the stakes so high and large amounts of money involved, it is vital for SMSF members to have their finger on the pulse.
Each investment comes with its own nuances and not every type of investment will be appropriate for you. Feel free of course to reach out to us here at Endorphin if you have any questions or would like to discuss how we could assist you to manage your investments.
The ability to become a shareholder or part owner of a company has long been a staple of Superannuation investments. If the company you have chosen is successful, you will likely benefit from an increased value to your shares and/or an income stream in the form of dividends from the company’s profits. In contrast, if the company is struggling, you may see the value of your investment decline and/or no dividends paid out at all.
In your SMSF, a focus on quality companies that deliver consistent dividends are often highly sought after to increase the value of your fund or replace the funds you are withdrawing if you’re lucky enough to be enjoying your retirement. In Australia, companies like Telstra and Wesfarmers are currently offering attractive fully franked dividends to contribute to your cash flow.
One of the benefits of modern technology is being able to invest in global companies in your SMSF as well. Do you see almost everyone on the train on their phone or tablet? Might Apple, Google or Facebook continue to be profitable companies in the future?
Do you believe that the growing middle class in Asia will lead to more disposable income and more motor vehicle and life insurance policies being required? There are companies that stand to benefit from nearly every scenario or trend around the world and fortunately there are investment options that you can take advantage of also.
Hybrid investments are essentially a method for companies to borrow money from investors in exchange for coupon payments. The name Hybrid is due to the investment’s ability to contain characteristics of both debt and equity investments, and is generally regarded as a more conservative investment than shares in the company itself.
Like an investment in debt, typically there is a promise to pay a rate of return until a certain date. There can also be features that resemble equities, however often, a future ‘call’ date where capital is offered back to the investor at a pre-determined rate. We have found a select few Hybrid securities to be worthy of an investment including some offered by Australian banks and Health Care providers that can offer franking credits as an added bonus.
Bonds are a small step up the risk curve from Term Deposits and are utilised in portfolios to reduce the overall volatility of your SMSF funds. Governments and companies from all around the world are regularly seeking additional cash to fund expansion projects, and bonds are a method by which investors can loan them money in exchange for regular interest payments.
It should be mentioned that not all bonds are created equal. Some global governments and companies are certainly riskier than others. Whilst past performance is not a reliable indicator of future performance, some bond fund managers have been returning as much as 8.34% per year to their clients over the last 10 years after fees. Bonds are a good way to stabilise.
Australia’s most favoured asset class is most commonly referred to as ‘bricks and mortar’. Property has its own specific risks and challenges that will need to be considered before investing in property through your SMSF.
Unsurprisingly, since the government has allowed for SMSFs to own property directly, investors have been looking for opportunities to take advantage of the preferential taxation treatment compared to owning the property in their own name.