SMSF's: The biggest pitfalls

Too often people are enticed into setting up a self-managed super fund on the suggestion it will give them greater control over their underlying investments and allow them to invest directly in real estate assets.

As readers of this newsletter know, I don't believe real estate is an appropriate investment moving into retirement and in terms of taking control of your retirement savings, there are much better, cheaper options available these days.

While these are the biggest pitfalls people encounter in choosing to establish a self-managed super fund, there are three more that I think everyone who owns their own fund should be aware of.

Firstly, it is very tempting in the hustle and bustle of modern life to let your fund slide to the bottom of your list of priorities, when we all know it should be at the top of your list.

This means too often that funds are let sit when they should be proactively invested, that underperforming assets are not sold when they should be and regular reviews of portfolios are not conducted.

It also means that often there are funds left behind in old industry funds or retail funds which should be rolled into your one main superannuation account and are not, simple because it all seems too hard.

The next biggest mistake is that funds are not effectively managed. Have you really thought through what your investment strategy should be and written it down or are you relying on a generic statement supplied by your accountant?

In retirement, the key focus should be on preserving capital at all cost and then generating as much income as safely as possible. That should be the investment strategy of everyone in retirement.

In managing your own investments within your super fund, it is too easy to be distracted by the latest fad or story making the rounds in the newspapers, such as crypto currency investments or buy-now  pay-later companies.

Finally, the biggest pitfall is that the fees for most self-managed funds are simply too high, particularly if you are in retirement, and they are only set to climb higher.

Its not just your accountant's fee! It is the auditor's fee and the actuarial fee, that all add to the cost and complexity of holding your retirement savings in a self-managed super fund.

Unless you have a solid reasons for owning a self-managed super fund, such as owning your own business premises in it, you should make the time to look at the better cheaper options out there.