Are pooled mortgage funds good SMSF investments?
The best self-managed superannuation funds (SMSF) include investments of varying types. Having a diversified investment portfolio means you’re able to spread the risk of your investments while at the same time exposing yourself to more opportunities for return.
An important factor you need to remember is that the best SMSF investments are ones that match your needs, goals and situation. What might be right for someone else may not be right for you.
Invariably, most good SMSFs include property within their portfolio. And many SMSF managers look to traditional investment property solutions. But with prices continuing to skyrocket and supply on the market limited, it may be time to think outside the box when it comes to including property in your SMSF portfolio.
Pooled mortgage funds can be a great option for SMSFs. Not only do they provide a range of benefits by including them in your portfolio, but they’re also open for investment to SMSFs at all stages of a funds lifecycle.
Here we’ll explore:
- What investment options are available
- How much money you need to start an SMSF
- What the best investment options are for your SMSF
- Are pooled mortgage funds good SMSF investments
But first, let’s get a clear understanding of what an SMSF is, along with some of the benefits and drawbacks to planning your future wealth yourself through an SMSF.
What is an SMSF?
As the name suggests, an SMSF is a superannuation fund that’s managed by you.
Instead of directing your super contributions to an industry or retail super fund, you use the money in your own SMSF instead. While retail and industry funds make decisions to benefit all members, with an SMSF you can choose options that will directly benefit you.
But the flip side is you’re the one making the decisions and choosing how your money is invested. You’re responsible for researching, comparing products, activating the investment and monitoring it.
It also means you need to arrange your own insurances such as life, total and permanent disability (TPD), and income protection.
Benefits of an SMSF
SMSFs can offer benefits industry or retail funds can’t. Some benefits include:
- Complete control with the ability to choose exactly where your money is invested
- More flexibility
- Access to a wider range of investment choices
- The ability to be more agile with your investments, meaning you can make changes when you need to
- Costs that are mostly fixed
- Effective tax management
Drawbacks of SMSF
Like all investments, there are some drawbacks and risks to managing your own superannuation fund. They include:
- Fulfilling the duties and responsibilities of being a Trustee of your SMSF
- You must live in Australia
- Costs of running your fund. You need around $250k in assets to make it worthwhile
Making the decision to plan for your retirement through an SMSF needs careful consideration. Not to mention research. You need to know what’s involved, understand the responsibilities and weigh up if it’s the right option for you.
What is the best investment for SMSF?
While one of the main benefits of an SMSF is the ability to choose how your money is invested, most SMSFs have a significant amount of their portfolio invested in shares or cash.
While there’s an abundance of alternative investment options, property is also high on the list for many SMSFs. However, there are a few things to consider when investing in property.
It’s worth thinking about what stage of your career path you’re currently at. Significant capital gains from traditional property investments are realised over the long term. Think 20-30 years.
That’s why it’s younger investors (in their 30s or 40s) who tend to opt for traditional property as a significant proportion of their SMSF portfolio. But even then it’s proving challenging in the current property market.
Pooled mortgage funds
Whether you’re just starting out with an SMSF or closer to retirement, investing in a reputable pooled mortgage fund allows you to diversify your portfolio to include property, while also avoiding the lengthy wait time before capital gains can be achieved.
Active Property Group’s pooled mortgage fund provides investment options for both wholesale and retail investors. With minimum investment amounts of $10,000 for retail and $25,000 for wholesale, it makes adding property to your portfolio a whole lot more achievable.
Plus their pooled mortgage fund can provide:
- Higher returns than many other investments
- Regular passive income
- Experienced management
- Instant diversification
Where can I invest my SMSF money?
SMSF has more investment options available to them than industry or super funds. The main investment options that make up SMSFs are:
- Australian and international shares (listed and unlisted)
- Residential or commercial property
- Cash and term deposits
- Fixed-income products
- Physical commodities
It’s important though that you consider how much time you have before needing to access your retirement funds. Being realistic about when you’ll need the funds will help you work out which investment options are going to help you reach your financial goals.
The top asset allocations detailed in the Australian Taxation Office quarterly estimate (March 2021) of asset allocation for SMSFs were:
- Listed shares (26.35% of all SMSF assets)
- Cash and term deposits (18.98% of all SMSF assets)
- Unlisted trusts (12.6% of all SMSF assets)
- Non-residential real property (10.54% of all SMSF assets)
And although there are many more investment types you can choose from, make sure you research well and seek professional advice when you need it.
How much money do I need to set up an SMSF?
The general belief is that the minimum required to cost-effectively run an SMSF is around $200,000.
But Australian Taxation Office figures show nearly a quarter (almost 25%) hold less than $200,000 in assets, and almost 7% hold assets totalling less than $50,000.
The advice provided by ASIC is that if the value of the fund is less than $200,000, then the Trustee must be willing to undertake the majority of administration and the management of the investments to make it cost-effective.
How much to invest?
While each investment option will have different minimum investment amounts, mortgage funds can be a great option as they have relatively low minimum amounts. For example, Active Property Group has a minimum buy-in amount of $10,000 for retail and $25,000 for wholesale for their pooled mortgage fund.
That’s much less than buying a property outright by yourself.
Plus getting access to their experienced and proven investment team, means you’re getting assistance with the management of your funds. So if you’re starting out, or getting close to retirement, tapping into professional know-how can be the difference between a lucrative investment choice or not.
What are the best investment options for super?
Ultimately the best options for super are the ones that suit you. The biggest factors to consider are your age and your financial goals.
The best SMSFs have some key features in common
- A well-developed investment strategy that is aligned to specific objectives
- Diversification in its investments
- Annual reviews of your investments and your strategies
As you get closer to retirement you may need to rely more on income-generating investments. Ones that pay a reliable, strong annual income. Mortgage funds let you reap rewards from investing in property without having your money tied up for decades.
Younger investors may look to options like traditional property, which are better suited to long-term investment strategies. The potential for capital gain is high in the long term, but in the meantime, the income generated from it is relatively low.
But with elevated prices making it more difficult for younger investors to purchase property, they too are seeing the potential of pooled mortgage funds. Investing in pooled mortgage funds is allowing them to reap the benefits of property investment without being completely priced out of the market.
Diversification is key
When it comes to investment options for your SMSF, there are viable alternatives to cash and shares, which are worth considering. And better still adding additional asset types will strengthen the viability of your fund.
By diversifying your portfolio, you can better manage risk to sustain your income as you move closer to retirement. Considering an alternative such as a pooled mortgage fund for your SMSF can provide you with a number of benefits.
Advice from experienced professionals
However, it’s not always easy to decide on these types of investments without specialist knowledge. All investments have their own risks. So speak to a professional if you’re considering including a pooled mortgage fund to your SMSF portfolio.
If you’d like to find out more about investing in our Pooled Mortgage Fund via your SMSF please get in touch at [email protected]