SMSF Investment Opportunities

istock_000015199465largeThere are now roughly 600,000 SMSFs in Australia, each investing on average $1,000,000 within their fund[1]. These numbers are continuing to increase each year as more people elect to invest their own savings to 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. Monitoring your returns, fees, fund managers and investments can be complicated at times, so we thought we would take this opportunity to highlight to you some investment options that you may interest you in building your wealth so you can enjoy the retirement you deserve.

Each investment comes with its own nuances and not every type of investment will be appropriate for every investor. Feel free of course to reach out to us here at Endorphin if you have any questions or would like to discuss ways that investments such as these could perform a role in your portfolio.

Shares

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 Vicinity Centres (owners of Chadstone, Emporium and Chatswood Chase among others) are currently offering fully franked dividends of 6.2% and 5.5% respectively.
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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? Apple’s share price recently jumped 11.67% in just four days after the new iPhone7 was launched.

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 can take advantage also.

Hybrids

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, they typically promise to pay a rate of return until a certain date. There can also be features that resemble equities, however offer 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 with rates of 4 – 6% including franking.

Bonds

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. And whilst past performance is not an indicator of future performance, some bond fund managers have been returning 8.34% per year to their clients over the last 10 years after fees.

Property

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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 your retirement savings.

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.

SMSF investors will need to consider a few important questions however before they start bidding at auctions:

Does the investment match my attitude towards risk?

Do I have the funds available to cover any repairs, council rates, water rates or unforeseen expenses?

Do I understand that I need to hold the property for the long term to allow for downturns and large expenses such as stamp duty and agent’s commission?

Am I aware that if I need the money invested in the property, it could take months for a sales campaign and settlement period before I receive the funds?

If I’m using a considerable amount of the fund’s assets to secure a property,

Can I achieve adequate diversification within the fund?

Is my SMSF actually able to borrow the money needed to purchase the property?

As with all investments, it requires a lot of thought and consideration into the potential benefits and risks involved. We pride ourselves on being experts in researching opportunities and recommending quality investments that fit in with our client’s objectives and retirement plans.

For an obligation free conversation about your financial future, please contact us on 03 9603 0072 or at advice@endorphinwealth.com.au

Phillip Richards

Director and Wealth Advisor

Endorphin Wealth Management

Phillip Richards is a qualified Financial Advisor with more than nine years’ experience in the industry. His expertise in investment, superannuation, SMSF, retirement planning and insurance will help you assess your options to build your wealth. Contact Phillip today to discuss how you can build your own wealth and plan to reach your goals.

This information is general in nature and does not take your personal situation into account. If you are interested in taking control of your wealth, contact Endorphin Wealth Management.

[1] ATO SMSF Statistical Report March 2016 ( https://www.ato.gov.au/Super/Self-managed-super-funds/In-detail/Statistics/Quarterly-reports/Self-managed-super-fund-quarterly-statistical-report—June-2016/)

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