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Ashwin: The key part with the self-managed super fund is those first two words. It’s self-managed. You’ve decided to walk away from advisors whether they are industry or managed fund scenario and you’ve gone down that pathway I suppose. I ultimately, the accountant in me would say most investing you can do within an industry or a managed fund. They do have DIY options now. It’s probably only a relatively new thing in the last few years where you can buy ETFs and ASX shares through your fund direct. That’s cost effective.
Gareth: No one ever told that 25 year old me.
Ashwin: No and that probably didn’t exist maybe when Gareth took the leap into a self-funded super fund and self-managed it. For us, for me personally a self-managed super fund for us to invest in an unlisted shares and unlisted property, commercial property so business property which you can’t do in any other super fund. I like the idea that I’m a part owner in the building I’m paying rent into in my business. You can’t do that in any other vehicle and be protected in retirement from a big capital gain and tax-free profits and rent effectively. It made sense for us for that side of it.
I’ve got an interest to do the self-managed part of the fund. It is more costly. It’s a fair bit more regulations on what you can and can’t do because you’ve stepped in as the advisor yourself but you’ve got to be focused on that self-managed part. In my view, if you can’t, if I didn’t have any time or willingness to manage the investments then it’s probably not, that’s probably when I’d be looking to go back into another type of fund.
Gareth: I think you’ve got to back yourself like in my relationship my wife doesn’t have any interest in managing our money at all. She backs me. I’ve got to back both of us. It’s my neck on the chopping block. I think a lot of people like to have someone to blame. A financial advisor is an easy person to blame when your portfolio goes down 10%. You forgot all of the 10% annual gains you had for the last 10 years and you’d come down with a ton of bricks as it went down 10% in a week whereas if you self-manage you owned it. You’re in your own race. You made that decision. That’s what you decided. Certain people are like that. I am like that. I do my own thing. If you’re not good at doing your own thing and you need someone else to tell you what to do.
Ashwin: That’s the key part right. If you’re willing to do that then that the right mindset I suppose to have as a trustee or if you’re looking after the funds of the super fund but it ultimately for me it comes back to I do like to know where my money is invested and what those shares are opposed to knowing 30% is invested in Australian shares. What are those shares doing?
Gareth: What are those shares? Which ones? Are they the bottom 50? Are they the top 50?
Ashwin: That’s the side of it that I think most people I would hope with self-managed super funds are engaged in what they’re investing in and it’s not just money in the bank or TD’s because you’re better off actually doing that in a low cost option than a self-managed super fund but I think for most people it’s a great tool to invest in things you can’t otherwise invest in but you’ve also opened yourself up to the upside and the downside of what that is. You’ve got to be accountable to yourself. You don’t have anyone to blame for it because you’re the one that pulled the trigger to invest in XYZ. I’ve definitely had my share of…
Gareth: Did we answer the question? What was it?
Ashwin: What’s the allocation? I think it was the allocation right? We’ve sort of answered I think Gareth but the allocation will come back to what your risk profile is or what you need to achieve. It’s a balance of that. Your risk profile might be very conservative. In my case, accountant by nature so fairly conservative but what I need in retirement requires me to take a different risk appetite to get there. My investments are probably I would say is probably about 70% to 80% growth and 20% to 30% defensive. I try and manage that within our fund and in various ways whatever the investment is whether it’s property, unlisted shares, Australian shares, overseas shares, bonds. I’ll balance it out using that.
Gareth: I think on that point as well it’s really important to work out when you need the cash because the liquidity of if you’re 80% property, 20% shares, selling a property transaction can take months, years sometimes longer. Then all of a sudden you’ve got 80% of your fund dumped out into cash. Now what am I going to do with it. You have to think about how quickly do you need to draw down the funds when you get there.
Ashwin: That’s why liquidity is a big, big point with some self-managed super funds potentially having big assets like you say. When they get to retirement you’ve got minimum pension withdrawals which can affect that side of it but you should be aware or an advisor should be talked to when you’re getting closer to those main points. We’ve got clients that are self-managed superfund clients. They’ll still engage with an advisor at the main points in their life.
It could be when they have kids. You’re looking at your insurances, you’re looking at your investment outlook now that you’ve got kids. It might be in marriage, if you’re looking at that point. It could be out of divorce if that unfortunately happens to you. It could be when you’re looking at transition to retirement. The kids are out of home or it could be when you receive an inheritance or it could be when you’re getting closer to retirement. You still need an advisor. Self-managed doesn’t mean there are no financial advisors you should engage because those big moments generally require a statement of advice from a financial advisor to ensure that you are on the right path.
Gareth: If I’ve got a self-managed supervisor I can still have an advisor. I think there’s a bit of a misconception that if you’re an SMSFer then you’re on your own 100% but there’s plenty of accountants, tax lawyers, financial advisors who won’t have any problem giving you their advice. I think that’s a misunderstood, maybe I’ve misunderstood but Ashwin’s nodding his head.
Ashwin: There wouldn’t be a lot of occurrence of tax advisors with their licenses because it just got cost prohibitive and personally from my point of view we ended up letting go of our license because what we had to charge to give people advice.
Gareth: Because of liability and insurance.
Ashwin: Yes and it serves its purpose but there are financial advisors out there that will engage with self-managed superfund clients so you can have that conversation on where you should have your asset allocation depending on again your budget, your runway and retirement. That’s the accountant answer in me is you do need to probably engage an advisor to get the right outcome of the allocation but that’s useful information because that’s what’s going to guide you for the next period of time till that big event that happens potentially in the future. That’s the way I would approach it and it’s how I went with our super fund was look at what we needed and mapped my way that way. I don’t know if Gareth actually did that. Did you ever see what your trajectory is?
Gareth: No. I’m a kick it down the road, punt it. It’ll work itself out. I think it’s a really interesting point because when you embark on this little journey people quote your numbers like 5% a year, 6% a year, 8% a year, pick a number. You can very quickly do a little spreadsheet and say if I put $25,000 in a year. I’ve got $100,000 to start with then at 6% I’m going to end up with a million. If 8% I’m going to end up with two million and so on but then then they throw in little things like global financial crisis and a Covid meltdown. Those numbers have just become irrelevant. I think it’s important to have a sphere of knowledge in that you know that it may be somewhere between 3% and 10% maybe but I don’t think any anyone has any ability to predict a 30-year compounded average interest rate. People would like to but if I could do that I’d be a very, very wealthy person.
Ashwin: We wouldn’t be doing a podcast.
Gareth: No. I think you take each year as it comes. I think that the point that Ashwin’s probably trying to get to is keep on top of it. You may start off when you’re 30 and say well by the time I’m 60 I want 2 million dollars in my super fund but you need to be on top of it every year. If we did 10 years of zero either your expectations have to change or you may have to take more risks or less risks or put more money in. You need to…
Ashwin: Part of it would be rebalancing. A lot of people don’t do that in their fund whether it’s in the self-managed specter I’d assume like you’d look at your fund and if you had a really big win in one of your barrels that you got your money in and it’s over performed. You’re supposed to realize that gain and then reinvest it in the pool. If you’re not doing that that’s okay but as long as you’re still aware that you’re not doing it. You’ve made the active decision not to do it. That’s okay but I’ll I would probably rebalance if I do have a really big upside in let’s say Australian equity so the Australian shares have really done well. I’m going to cash some of that in and rebalance it.
Gareth: Find the next opportunity.
Ashwin: You just got to spend your time doing that I think but if you choose not to do it that’s okay as well but be aware that you chose not to do it.
Gareth: It’s a bit like playing lots of little games in one big game. It’s not one game that you’re going to be the winner in 30 years.
Ashwin: That’s true.
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