SMSF Strategy Questions

Discussion in 'Investment Strategy' started by alexm, 9th Dec, 2017.

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  1. alexm

    alexm Well-Known Member

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    Hi all,

    For those of you with a SMSF, do you use leverage to invest in assets such as property, shares, managed funds etc or do you invest using unemcumbered cash?

    Also in general terms, what does your SMSF investment mix look like (e.g. 20% property, 10% shares etc.)?

    I'm looking to setup a SMSF and am receiving professional investment advice however i'm interested in getting opinions from others on here who have already done this, in terms of how their SMSF looks (obviously each person's circumstances are different).

    Thanks
    Al
     
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  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I wouldn't want to invest in property without leverage.
     
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  3. kierank

    kierank Well-Known Member

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    I agree, which for me means I wouldn’t buy property in a SMSF
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    But a SMSF can leverage property - only for a purchase though.
     
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  5. kierank

    kierank Well-Known Member

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    I know but I would rather leverage and buy IPs outside of SMSF due to access to equity, renovation and development options.

    That is just the way my strategy is constructed.
     
  6. Ross Forrester

    Ross Forrester Well-Known Member

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    I don’t borrow in my smsf.

    It is my safety net for doomsday. I want it safe.
     
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  7. BuyersAgent

    BuyersAgent Well-Known Member Business Member

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    1 or 2 Properties with 30% deposit and 70% LVR - low risk high yield is my ideal combo for SMSF. Makes it +cf from day 1 and pays itself off in my retirement window on rent alone. I have clients who have doubled their SMSF fund balance through equity growth because of 1 or 2 well selected properties bought early in the cycle.

    Currently have some funds out on fixed interest business loan and some in cash.

    Planning on upping direct shares to 10-15% soon.

    Considering tinkering with the strategy to grab very small amounts of a range of bitcoin assets in case it ends up being the new economy. (the very small amounts being in case it goes the way of the tulip)
     
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  8. BuyersAgent

    BuyersAgent Well-Known Member Business Member

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    @alexm unless you have a large fund balance when you first buy a property it will represent 60/70/80 or more % of your total assets. This will reduce over time assuming you keep making contributions and invest them in other classes while the property just sits there doing its own thing. Thinking long term I believe it makes sense to grab one or 2 chunky assets and use what little leverage is allowed early on then diversify into more liquid options as time goes on.
     
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  9. icic

    icic Well-Known Member

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    when dooms day does happens, no investments are safe. If anything, brick and motar will pbly be more reliable and stable. Back in 2008, had colleagues who already retired had to go back to work because their super got decimated because of the GFC.
     
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  10. Ross Forrester

    Ross Forrester Well-Known Member

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    Cash is safe.

    And a diversified share portfolio with no debt and more than 20 stocks has virtually no chance of losing 100% of its capital.

    Debt, and the lack of diversication, is the primary reason why investors lose all their capital.
     
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  11. neK

    neK Well-Known Member

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    My super is my "blow it on blow" fund. At the rate the govt screws with something they clearly don't understand I ain't banking on it being accessible when I want it to be.

    Small cap and other speculative funds for me :p.
     
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  12. kierank

    kierank Well-Known Member

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    Here, here.

    We are retired and we keep a minimum of 3 years’ pension in cash, in case the “**** hits the fan”.

    I don’t understand this concept of retirees going back to work because they lost all their capital. Wrong structure in my books.
     
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  13. icic

    icic Well-Known Member

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    Diversification is important and cash reserve certainly plays a crucial role in ensuring ones financial security, but I would not classify it as a type of investment and certainly not classify it as safe. There are far too many cases of hyperinflation around the world and in history to consider it anything but safe IMHO.
     
  14. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Cash is an investment..it can generate both income and/or capital but ordinarily can lack the capital return when invested for periods of 12mths or less (sometimes longer). Typically cash is invested to earn only a rate of return but some longer term fixed interest investments also impact capital.

    Cash is not always capital stable but can be 100% secure in some limited cases. eg The Government insurance scheme pertaining to deposits with Banks (which has limits !!). In most cases the capital stability is implied and not actually real however the inherent stability is found in the Australian banking system and its 4 pillars policy and the Government desire to protection our banking system from a system failure...A unstated but implied bail out would protect deposit funds. However in reality this is not a written guarantee beyond the scheme limits
    Banks, Building Societies & Credit Unions Covered by FCS - FCS

    I had a SMSF client years ago who feared a market crash - aged in their 80s. They didnt want or need growth but wanted stability and regular income and NOTHING else. They had 0% in shares etc and had 100% in term deposits and cash. Spread across 4 major banks - 25% each.

    They were retirees and saw friends lose retirement savings to all sorts of things and wanted 100% capital stability and saw this strategy as their protection

    And why they used a SMSF. They could choose and control the investment strategy and mix. Despite SMSFs being uninsured industry funds arent either unless fraud etc occurs. The non-smsf super system has APRA regulation but lacks insurance or protection of benefits too. Some super products are capital protected eg but otherwise the stability and safety of super is implied.
     
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  15. Big Will

    Big Will Well-Known Member

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    90-95% shares 5-10% cash (depends on when I last bought).

    The shares are diversified in either direct shares or ETFs and some of the shares own property either internationally or locally. So you will still have exposure to property through shares.

    I am not a fan of property like Kierank mention is because you cannot draw the equity against the property. E.g. house goes from 500k to 1M you cannot draw out even 50k to further invest the only way to get the money is to sell and re buy.

    The other reason for shares is the liquidity part, if I need to get cash quickly for whatever reason I can sell right now and have the cash in a couple of days in my bank account (can also sell a portion of the shares). Compared with property where if something happened I would need to talk to REA, orgnaise marketing/photos, list the property, likely wait a month before we see some offers, accept an offer wait for settlement which is likely another 30-60 days and then wait for funds to clear which could be another week on top further I cannot sell a portion of the house.

    So with shares I can have the money in a week but with property I could be looking at 3 months along with having to sell the whole asset compared with shares when I can sell 0.001% to 100% of the portfolio.
     
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  16. Nodrog

    Nodrog Well-Known Member

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    Agree. Hold a similar cash buffer of around 3 years pension payments ourselves. Fortunately pensions are covered by portfolio dividends so don’t need to touch the capital. Dividends are much more stable than capital which is a huge benefit when the **** hits the fan.
     
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  17. BuyersAgent

    BuyersAgent Well-Known Member Business Member

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    this is why high cash flow property is worthy of consideration - not for drawing off equity or selling but for buying groceries with the rent. My parents do it and are very happy they don't only have shares. (they own shares as well)
     
  18. FullRun689

    FullRun689 Well-Known Member

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    Has anyone ever looked into or joined Giumelli Group's small property projects program?
     
  19. FullRun689

    FullRun689 Well-Known Member

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    They claim to do small 3-25 lots subdivisions in Qld with over 40% pa return to clients.
     
  20. Big Will

    Big Will Well-Known Member

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    Still cannot draw the equity from the property and has long sales time/process plus has to sell the whole asset if you ever need to buy groceries.

    If it works well for them then that good for them however I see more efficient having property outside as you are able to harvest equity and shares within super for casfhflow and flexibility.
     
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