Why you shouldn’t overlook Mortgage Investment Funds
One of the main benefits of managing your own Self-Managed Superannuation Fund (SMSF) is the chance to take control of how, when and where your money is invested. While it’s true there are rules and regulations you need to follow, when you’re managing your own SMSF, you’re given the opportunity to look for investments that work for you, not some anonymous super fund manager.
And for the investor who wants to be in control of their own future, this means choosing investments with consistently good rates of return. Investing in a mortgage fund has become a popular choice for SMSFs that are interested in passive investments and higher than average returns.
So whether you’re a young person to whom retirement is just a distant speck in the future, or near retirement age and giving up work is just over the next hill there’s plenty of reasons why it makes sense to include pooled mortgage funds as part of your SMSF investment strategy, but first let’s look at the benefits of an SMSF more thoroughly.
Why choose an SMSF and what are the main benefits
An SMSF lets you manage your own superannuation investments. And it’s no secret that the best SMSF investment strategies involve a diversified portfolio. As a matter of fact, a 2018 study out of Deakin University for the Australian Journal of Management proves access to a greater choice of investments was one of the main reasons people wanted to manage their own super fund.
The SuperGuide website wrote:
That study, which involved a survey of more than 1000 superannuation members, concluded that “the freedom to choose and monitor investments and the opportunity to minimise tax are the two main reasons that SMSF members nominate as the reason they start or join their own small retirement savings fund.”
And in our recent article on the Best SMSF investments, we noted the main benefits of an SMSF include:
- Complete control – you can choose exactly where to invest your money
- Greater flexibility
- Access to a wider range of investment choices
- The opportunity to be more agile with your investments – you can make changes as needed
- Costs that are mostly fixed
- Effective tax management.
Our Best SMSF investments article also talks more about how to set up your SMSF, how much money you’ll need to start and other super investment options.
Important SMSF facts
Since its introduction in Australia in 1992, superannuation has gone through some major changes. Some interesting SMSF facts from the 2018 article Who starts a self-managed superannuation fund and why?:
- SMSFs now manage almost one-third of retirement savings in Australia
- SMSFs serve over one million members
- The number of SMSFs has increased to more than half a million in two decades
- Control over investments and tax minimisation are the most common reasons for starting an SMSF
It seems more people want to retain control of their superannuation, are happy to take advice from an investment manager and are becoming increasingly more confident and sophisticated at asset allocation.
What’s asset allocation?
Asset allocation is a technique used to balance risk by distributing portfolio assets between different categories, generally referred to as classes. Each asset class has a different level of risk and return which means each class will perform in a different way. This is where your current financial situation, long-term strategy and risk tolerance comes into play.
You also need to consider how much money you want to tie up for the long term. That’s why investing in a pooled mortgage is a great SMSF option. While lots of people consider an investment property within their SMSF, it’s not always the case that you have the necessary amount available to purchase a property outright.
So investing via a pooled mortgage fund can give you access to the property market without the high entry costs, usually, minimum investments start from as little as $10,000.
Pooled investment funds offer a solid rate of return, plus you don’t have to be locked in for lengthy periods of time.
What’s a good SMSF investment strategy?
A good SMSF investment strategy is about more than just putting money into a superannuation account and hoping it pays off. It’s about understanding superannuation and investing. It’s knowing what you need to do now to prepare for what you’ll need in retirement. It’s also about figuring out the best way to get there.
In a nutshell, the best strategy is the one that falls within legal parameters and works best for you. But as with all investments, there are laws and rules you must follow.
The Australian Taxation Office (ATO) reminds us that superannuation laws require that you must prepare and implement an investment strategy for your self-managed super fund (SMSF) which you must then give effect to and review regularly.
The benefits of investing in pooled mortgage funds
There are many benefits to investing in a pooled mortgage fund. But first, what’s a pooled mortgage fund?
A pooled mortgage fund is the pooling of investor funds and lending them out across a portfolio of mortgages. The fund manager chooses the loans based on an extensive due diligence process and the lending risk is shared by all investors. Investors receive regular returns based on the interest rates paid by the borrowers.
One benefit of pooled funds is a more diversified portfolio. Because the investor’s money is spread over many loans, the risk to anyone investor is reduced, even if one of the borrowers defaults on their loan then the rest of the portfolio will hopefully still be performing and paying a return.
How investing in pooled mortgage funds could be exactly what you’re looking for
Lower buy-in
Pooled mortgage funds tend to have lower minimum investment amounts (sometimes as little as $10,000) making them suitable and very accessible for investors of all experience levels.
Property Investment
With prices continuing to soar, investment real estate in some Australian cities is out of reach for many people. Let’s say you’ve got a tidy sum to invest. But it’s not quite enough to buy an investment property outright on your own.
Investing your money into a pooled mortgage is a perfect compromise. Your money, handled by an experienced fund manager, is safely invested in mortgages secured by Australian real estate.
Passive income
Most pooled mortgage funds pay distributions on a monthly or quarterly basis, making it a great option for investors wanting to earn a regular passive income. Most pooled mortgage funds pay between 5-10% p.a. Active Property Group’s pooled mortgage fund has been a popular choice for many SMSFs since inception as it has provided consistent returns and a passive investment opportunity – making it ideal for those who want to enjoy financial freedom.
If you are interested in finding out more about investing in APG’s pooled mortgage fund via your SMSF please get in touch with [email protected]
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