Investing using a SMSF

A Self managed superannuation fund (SMSF) can invest in many types of assets provided the intention is to provide retirement benefits when the members ultimately retire.

Typically, a fund can have:

1. Cash
2. Australian shares
3. Direct property - either residential or commercial
4. Indirect property - either through a trust or syndicate
5. International shares
6. Fixed income - bonds, bank loans, etc.
7. Hedge funds
8. Commodities such as gold.

These types of asset are the mainstay of the superannuation and managed fund industry. There is an expectation from the regulatory bodies that the assets of the fund would typically be comprised of some or all of these asset classes. In the long history of SMSFs other assets have been allowed in the past. Some examples are: 

1. Motor vehicles leased to a related company
2. Loans and financial support to a related company
3. Art works
4. Vintage cars
5. Overseas properties
6. Precious metals
7. Stamp collections
8. Business equipment which could be leased back to a related company.

A SMSF is required to have a written investment strategy. This strategy details the type of assets that the fund should hold to achieve its investment objectives. Until recently exotic assets such as art could be held in a fund if the investment strategy set down the guidelines.

The Cooper Review has recently recommended that exotic assets such as art be prohibited as a legitimate asset class. For funds with affected assets they will have plenty of time to dispose of them.

Regardless of the rules, common sense would suggest that assets in a fund should: 

1. Increase in value over time
2. Be capital guaranteed (like a bank account)
3. Pay a regular income stream
4. Be saleable.

The common sense approach is the safe way to manage assets in your SMSF.

The SMSF remains a very attractive investment vehicle where the low tax rate means that after tax returns are higher than if investing as an individual. A SMSF can own property and many business owners take advantage of this. Most funds tend however to have a concentrated asset base (perhaps cash and property) and are at risk if asset prices fall. A fund with a diversified asset base (most asset classes) will usually perform better in the long run.