Typical SMSF Investments
A common reason given by Australians for choosing an SMSF (Self Managed Superannuation Fund) is the wider range of investments that are available in comparison to a standard fund. So what exactly can you invest in with an SMSF?
Many SMSF holders choose to invest in assets which are similar to the assets they would invest in personally outside of their superannuation.
Typical investments within Australian SMSFs include shares, cash and managed funds. Residential and commercial property is also a common investment, which has become even more popular since the introductions of new regulations that allow SMSFs to borrow money for property purchases.
In this guide we will look at some of the more popular investments held within SMSFs, but remember that there are strict regulations in place when it comes to SMSF investment, so you need to be careful before choosing investments for your own fund.
Cash & Fixed Interest
Cash and fixed interest investments have always been popular with investors, however with the continuing volatility in global markets there has been an increasing percentage of money going into more conservative asset classes such as cash.
The ability to invest and trade in direct shares is one of the biggest drawcards of an SMSF for many investors. Using a traditional stock broker or an online service, investors are able to trade shares and other securities listed on the ASX (Australian Securities Exchange).
An SMSF can invest in a range of managed funds that give exposure to a diverse range of companies and industries. By using managed funds your SMSF can gain access to investments that may not be available if you where trying to invest directly.
Managed funds can give SMSFs exposure to international equities, emerging markets, specific industries, commodities and a wide range of other attractive investment options.
Residential & Commercial Property
The ability for an SMSF to borrow money for property purchases has led to a big increase in the number of funds purchasing residential and commercial real estate.
There are strict rules around property transactions with an SMSF, especially when it comes to related party deals. SMSF trustees must also be careful when investing in holiday homes or any other property that may provide a benefit to family members.
Although SMSFs are largely restricted from investing in property that involves related parties, there is one exception that is used by many SMSF holders, which is the ability to purchase the business premises for your own business.
Your SMSF can purchase commercial property to be used by your own business, provided that your business pays rent to your SMSF at the full market rate.
Aside from the more traditional assets listed above, an SMSF can also invest in some more exotic and specialist investments.
One of the popular assets in this class is fine artwork, however as with most SMSF investments there are strict rules in place. You cannot display the artwork in your own home, however you can rent it to someone else provided that the full market rate rental is paid.
The penalties for owning the wrong investments in your SMSF can be severe, so if you are unsure of a particular investment you should seek advice from a qualified SMSF professional.