SUPER ADVICE: There can be upsides to running your own SMSF and some drawbacks.
SUPER ADVICE: There can be upsides to running your own SMSF and some drawbacks.

Are you likely to be left shortchanged in retirement?

OVER one million Australians have their retirement savings invested in a self-managed super fund, and that number grows every year.

There can be real upsides to running your own super but plenty of drawbacks too, and a report by the Australian Securities and Investments Commission reveals that one in ten SMSF members could be left shortchanged in retirement.

The figures from ASIC's review of SMSFs highlight some worrying issues. It found 10 per cent of SMSF members were likely to be "significantly worse off in retirement" because of poor financial advice.

One in five SMSFs face serious risks because the fund doesn't have a diversified portfolio of investments. And highlighting a key knowledge gap, 33 per cent of SMSF members aren't aware their fund is required by law to have a formal investment strategy in place.

Setting up a SMSF can be the right strategy for your retirement savings, but it's critical to think the decision through and be aware of the realities.

  • Two out of five people say running an SMSF takes up more time than they expected.
  • One in three find it's more expensive than they anticipated.

If the idea of having direct control of your investments is the main point of appeal of an SMSF, consider whether you have the time and money to make a success of it. There's a lot riding on the decision - including the quality of your retirement.

According to ASIC, some people are setting up a SMSF chiefly to buy a rental property. That's prompted a caution about 'one-stop-shops' where a financial adviser teams up with a developer or a real estate agent, whose products you may be encouraged to invest in.

Property can be a solid long term investment, but if you have limited funds in super you could be pinning your retirement plans on the fortunes of just one investment.  

Even more of a concern, ASIC found many people with a SMSF don't realise they can't live in the property their fund is buying.

Exposure to a variety of investments is critical to help your super navigate the highs and lows of asset markets. One way to achieve diversification is by using your SMSF to invest in managed funds with a decent track record of returns and good management. It's a strategy that can help you build a diverse, hassle-free portfolio.

Keep an eye on the fees charged by managed funds - and what you get for your money through additional services like access to quality research. The ongoing costs of running your own super can be the make-or-break factor that determines if a SMSF is right for you or if a professionally-run super fund could be a better choice.  

Paul Clitheroe is Chairman of InvestSMART, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.

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