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SMSF Emerging Investment Trends 2024

SMSF Investment Trends 2024 My SMSF Newletter May

Emerging Investment Trends for SMSF Investors in 2024:

In the ever-evolving landscape of superannuation, Self-Managed Super Funds (SMSFs) continue to offer a unique avenue for personalised retirement strategies, allowing members greater control over their investment choices. As we move into 2024, several emerging investment trends are gaining traction among SMSF trustees. This article explores these trends, alongside their benefits and risks, and highlights compliance with the Super and Tax laws.

  1. Cryptocurrency Investments

Benefits:

Cryptocurrencies have been a point of intrigue for SMSF investors due to their high growth potential. Their decentralised nature offers a hedge against traditional financial systems and the possibility of significant returns and no capital gains tax in pension phase.

Risks:

The volatile nature of cryptocurrencies presents a considerable risk. Their price fluctuations can lead to substantial gains but also severe losses. Furthermore, the regulatory landscape for cryptocurrencies is still developing, which adds an additional layer of uncertainty. Ensuring you can access your investment is critical. Remember, Not your keys, not your coins

Compliance:

Investing in cryptocurrencies requires careful consideration of the SIS Act. SMSFs must ensure that the investment is solely for the purpose of retirement benefits and is in line with the fund’s investment strategy and if the fund has other members, noting that most My SMSF funds operate as a pooled strategy not segregated, the risk appetite of all SMSF investors must be considered in determining the suitability of the SMSF investment asset. Proper documentation such  and compliance with investment restrictions are crucial to avoid contravening the SIS regulations.

Checklist: 

  • Investment strategy – updated yearly dated the 30th of June reflecting all asset percentages held
  • Where crypto is held in a Cold Storage Wallet, a screenshot or report showing the balance of the wallet holdings
  • Valuation of Crypto Assets: using our reporting tool or the free spreadsheet we provide

3. SMSF Property

Investing in property through a Self-Managed Super Fund (SMSF) has become a popular choice for trustees aiming to leverage the stability and potential long-term growth of the real estate market to enhance their retirement savings. The appeal of property investment for SMSFs lies in its ability to generate rental income and its potential for capital appreciation. Moreover, real estate investment through an SMSF offers tax benefits, such as a reduced capital gains tax rate if the property is sold during the pension phase.

However, SMSF property investment requires careful consideration of compliance with the Superannuation Industry (Supervision) Act 1993. Properties must meet the ‘sole purpose test’ of solely providing retirement benefits to fund members. Additionally, there are restrictions on acquiring residential properties from related parties and limitations on personal use of the property. SMSF trustees must ensure that all investments are made and managed on a strict commercial basis. This means properties should be bought and sold at market rates and rented at market rental rates. Understanding these rules is critical to avoid penalties and ensure the fund’s compliance.

Checklist: 

  • Investment strategy – updated yearly dated the 30th of June reflecting all asset percentages held by the SMSF as the financial statement
  • Execute copy of your Bare Trust Deed – stamped with the Land Titles office in your state
  • Annual Title Search Report, providing evidence of the ownership of the asset by the SMSF and the details of any loans

Benefits

  • Stable Cash Flows: Rental income provides a steady cash flow, beneficial for SMSFs in pension phase.
  • Capital Growth: Property values generally increase over time, offering capital appreciation.
  • Tax Advantages: Potential for depreciation claims and capital gains tax concessions.

Risks

  • Liquidity: Real estate is not quickly convertible to cash without potentially incurring losses.
  • Market Volatility: Property markets can experience significant fluctuations influenced by economic factors.
  • Maintenance Costs: Ongoing property maintenance and management can erode returns.

SIS Act Compliance

  • Sole Purpose Test: Property must be for the sole purpose of providing retirement benefits to members.
  • Borrowing Restrictions: Limited recourse borrowing arrangements are allowed but strictly regulated.
  • Arm’s Length Transactions: All dealings must be conducted on a commercial arm’s length basis.

Investing in Commodities through SMSFs

Commodities such as gold, silver, and oil present an interesting avenue for diversification in an SMSF portfolio. They are particularly appealing during times of high inflation or economic instability, as commodities often move inversely to stocks and can therefore serve as a hedge against market volatility. Investing in commodities can be done directly, through purchasing physical assets like gold bullion, or indirectly via commodity ETFs or mutual funds, which offer easier liquidity and lower investment thresholds.

The physical ownership of commodities, however, introduces complexities in terms of storage, insurance, and security. These physical assets must be stored in a secure facility and insured, which can incur additional costs. For SMSFs choosing to invest directly in commodities, compliance with the SIS Act requires that these assets be correctly valued at market price on an ongoing basis to ensure accurate reporting and auditing. Indirect investments, while less cumbersome in terms of management, must still adhere to the fund’s overall investment strategy and risk profile, maintaining the principle that all investments are made in the best interests of fund members. Trustees should also remain vigilant about the fees and costs associated.

Benefits

  • Hedge Against Inflation: Commodities such as gold and silver can serve as a hedge against inflation.
  • Diversification: Adding commodities can reduce portfolio volatility due to their inverse correlation with other asset classes.

Risks

  • Market Fluctuations: Prices of commodities can be highly volatile, influenced by changes in weather, political instability, and market demand.
  • Physical Storage: Physical commodities require secure storage and insurance, adding to the costs.

SIS Act Compliance

  • Ownership and Storage: Physical commodities must be appropriately stored and insured under the fund’s name.
  • Valuation Requirements: Commodities must be regularly valued at market price for accurate reporting and compliance.

Checklist: 

  • Investment strategy – updated yearly dated the 30th of June reflecting all asset percentages held by the SMSF and its members
  • All Gold, Diamonds and Metals to be held in an independent Vault
    • Annual valuation provided by the provider
    • Insured to secure your assets
 

Comparative Table of Investment Trends

Investment Type

Benefits

Risks

Key Compliance Issues

Real Estate

Stable cash flows, capital growth, tax advantages

Liquidity, market volatility, maintenance costs

Sole purpose test, borrowing restrictions, arm’s length transactions

Private Equity

High return potential, diversification

High risk of loss, illiquidity

In-house asset rule, diversification requirements

Cryptocurrencies

High growth potential, diversification

Extreme volatility, regulatory uncertainty

Storage and security, record keeping

Commodities

Hedge against inflation, diversification

Market fluctuations, physical storage

Ownership and storage, valuation requirements

Conclusion

While alternative investments can enhance portfolio diversification and potential returns in an SMSF, they also bring unique risks and compliance challenges. SMSF trustees must carefully assess their investment choices in light of their fund’s investment strategy and ensure strict adherence to the SIS Act requirements. By doing so, they can effectively manage their retirement savings while exploring these innovative investment avenues.

ADDITIONAL INFORMATION:

Contact My SMSF – Contact Us | SMSF Setup, SMSF Accounting and SMSF Loans (mysmsfproperty.com.au)

ATO SMSF Setups –

https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf

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