Our SMSF

By G Smith

Our SMSF has been running since the end of 1996. Being a government employee on a defined benefit superannuation scheme, a decision needed to be taken and I took the option of “retiring” at 54 years 11 months. At that time, salary-sacrifice was not an option.

After visiting several financial planners, I chose the only person who had suggested taking out contributions plus interest and starting a self-managed super fund. By doing this, it meant that I would receive a reduced state government pension, accumulate investments in the SMSF while my wife continued to work in a part-time job. All of the other planners encouraged me to convert my superannuation holdings to cash and invest it in various schemes mainly linked to their particular organisation.

Our investments were divided between six managed funds spread locally and internationally and six direct share investments focused mainly on blue-chip companies.

Of course in 1996, there was little choice but to accept the 4% entry fee for the managed funds, the annual MER plus our advisor’s trailing commission. It should be pointed out that no investments were made without our consent – we used a Macquarie CMT account for all transactions. One of the largest companies in Melbourne was used as our SMSF services provider. Initially, we found it very beneficial keeping us up to date with any changes in the operation of our SMSF.

We were fortunate that the stock market had started a run of five or six good years where our fund accumulated very nicely. My wife retired in 1998 enabling us to rollover what amounted to another 30% of value into the fund.

Our financial advisor initially was very responsive to any queries and requests and we met with him on a six-monthly basis. As time went on and with him changing to a larger company, we found that his advice at times was not always financially sound and his contact with us became more infrequent. It was about this time, early 2000, that we considered the task of running all investments ourselves.

At the same period of time, we investigated the cost of moving the SMSF into my wife’s name and to start paying her a pension. It culminated in several big changes. The SMSF service company’s leading financial officer at the time, advised us, that to move from accumulation to pension mode, we should sell all our holdings and buy them back in my wife’s name!! You can imagine how well this advice was received and eventually resulted in us moving our SMSF operations to another group. Annual compliance costs were almost identical (approx. 1% of value).

So in six years, our portfolio had changed from the initial six stocks/six managed funds to seven managed funds and fourteen stocks (a mixture of industrials, property trusts and resources); we had taken over all financial investment and had changed to another SMSF management group. My wife’s pension had commenced in March, 2001.

Through the 2000’s, our investment strategy changed and we sold all our managed funds (why pay an MER to lose money?), one mortgage trust was maintained and we reduced our stock holdings to <15. One cannot help but feel how fortunate for us that from mid-November, 1996 to early November, 2007 the Australian All Ordinaries grew almost 200%. One could not complain.

Currently, with interest rates going up, money was invested in term deposits with Westpac, ING Direct and ESANDA/ANZ using the proceeds from the sale of several stocks (IOF, MIG, BEN, BLD, SKE) made before the dip around November, 2008.
Since 2007, for servicing our SMSF, we have used i) a registered tax agent and ii) an auditor. It would come as no surprise that their combined charges are 45% cheaper than using a large service company!!

Best Buy:        Origin Energy
Worst Buy:      Connect East

We are members of the Australian Shareholders Association and the Australian Investors’ Association and recommend both these organizations highly. Share transactions are done using Commsec, and Macquarie Equities. An excellent little website is www.smartportfolio.com.au for share market movements, watch lists and charts. Income Investor (via hotmail) is also helpful in reminding one when ex-dividend dates are approaching.

Best advice

Spend a short but regular amount of time to keep your SMSF up-to-date. Dividend growth is one of the best fundamentals. Take full advantage of Australian company imputation credits. Invest, don’t speculate.

G Smith is a member of the AIA.