How you choose to invest your super is one of the most important financial decisions you can make, and it’s about to get more critical. From 1 July 2021, the amount of super your employer must pay increases to 10%, making it the perfect time to check that your super fund is working for you.

If you’re an experienced investor, chances are you’ve looked at your super account statements and wondered, ‘Can I do better?’. So let’s take a look at how you can control your most significant financial asset.

Member Direct and Super Wraps are two options that give investors some limited control over their super.

Member Direct Options

A handful of industry super funds give their members an option of picking their own Australian shares and ETFs. Unfortunately, the choices available are often limited to the ASX 300 and a selection of exchange-traded funds (ETFs) and listed investment companies (LICs).

There are also restrictions on how much of your super balance you can invest into the self-directed option. This means you need to keep a percentage (typically 20%) invested in one of the pre-mixed options provided by the super fund.

Another restriction is the limit on how much you can invest in any single share or ETF. When you combine these limitations with the comparatively high brokerage fees charged, member-directed solutions are mediocre once you scratch the surface.

Super Wraps

A super wrap is a type of retail superannuation fund that provides members with a range of listed shares (ASX 300 or ASX 500), managed funds, term deposits and cash.  A few super wrap products also provide access to a limited number of foreign listed stocks.

Compared to an industry super fund, super wraps generally have a higher minimum investment amount ($50,000 on average) and higher fees. Although there are some exceptions, most super wraps are only available through a financial adviser. This adds an additional layer of costs and complexity unsuitable to most self-directed investors who prefer to manage their own portfolios.

Super wraps also account for tax at an individual account level. This means tax credits are directly applied to the member’s portfolio, not shared across all members of a larger superannuation fund.

A Self-Managed Super Fund gives the deepest level of choice and control.

Self-Managed Super Funds (SMSF)

An SMSF is a private super fund that allows you to control how your super money is invested. SMSFs can have up to 4 members, and a company is typically set up to act as the trustee.

An SMSF can invest in almost anything provided the investment isn’t in a related party or provide any present-day benefit to the members or their family. So, you couldn’t lend your sister money to help her start a business, for example.

The amount of control and transparency an SMSF provides is unmatched by any other type of super fund. You choose the investments your SMSF makes and when to buy and sell. You monitor your SMSF portfolio the same way as you do with your personal portfolio.

Often overlooked when comparing different types of super funds is that an SMSF enables you to combine your super with your spouse. Sharing the fixed costs of an SMSF can often save on superannuation account fees overall.

The DIY and administrative aspects of an SMSF are massively overblown. Well-funded industry super fund lobby groups have been pushing the narrative that SMSFs are complex, time-consuming, and expensive for more than a decade.

These assumptions, which are half-truths at best (and misleading at worst), have found their way into the vocabulary of many financial writers and advisers. Unfortunately, this makes it difficult for investors to sort fact from fiction when it comes to SMSFs.

SMSFs are best described as self-directed super funds. They are perfect for self-directed investors who want to take control of their superannuation.

StakeSMSF

StakeSMSF has been created to provide a simple and affordable way for self-directed investors to invest their super directly in the US market, with more investment options being added soon.

Read a deeper investigation into SMSFs specifically on Stake Academy here.


Related