Setting up a self-managed super fund (SMSF) and deciding to take your financial future by the reins can be as scary as it can be exhilarating. Perhaps you don't fancy yourself a financial expert, and you don't have much experience in the area. It's only natural that you feel somewhat unsure.
Still, SMSFs are becoming increasingly popular in Australia.
"Australia has the third largest superannuation savings pool in the world, with almost a third of that money – $600 billion – in self-managed super funds," Vanessa Stoykov, chief executive of Evolution Media Group, said in a statement.
If you'd like to join this growing army of Australians, here are a few essential things to check off the list before you take the plunge and start the process.
Ask the right questions before committing
Before you've chosen to look after your own superannuation, speak to a financial professional to ensure you're making an informed decision. Ask yourself if you're able to handle the responsibility of being part of a SMSF. This is because your super is governed by strict rules and tax laws that you'll have to be on top of throughout the entire time it's under your purview.
Moreover, taking care of paperwork and dealing with legal issues will take time as well as skill. You have to ensure it's set up, correctly maintained and easily administered so it is eligible for tax concessions. You'll also have to be ready for the annual audit, which can be a complicated process and will require assistance from an approved auditor.
Some of the obligations involved include having a trust deed for the governing rules for operating the fund, creating an investment strategy that is regularly reviewed and following the rules and regulations that keep the fund protected.
There are also numerous laws and regulations around the payment of benefits, not to mention the matter of ensuring it's still financially worth it to administer your own fund.
This might sound difficult or too complex, but you have to be prepared for the realities of running an SMSF before you dive in.
Come up with an investment strategy
Once you've decided you're prepared, the next step is coming up with an investment strategy. Figure out your goals and what you want out of the fund. Do you want to accrue money slowly over the long term, or get a big windfall in a short amount of time?
Alongside this, you'll have to balance the kind of investor you are. Are you a conservative investor who wants to minimise risk at all costs, an aggressive investor who can handle some volatility in the short term or something in between? Your strategy and goals will have to align with your answer.
Don't go it alone
As the list of obligations and regulations indicate, managing a super will have to involve the help of others. This is more than just your fellow trustees. You'll also have to consult with professionals and advisers for expert counsel.
At some point, you'll also need to work with a registered auditor, a qualified actuary, an independent valuer, as well as accountants and administrators.