MONEY MATTERS: Improving super returns despite increasing red tape

Decisions: Managing a fund to comply with the law and earn high returns becomes more challenging each year with frequent changes to the superannuation regulations and less predictable investment markets.

Decisions: Managing a fund to comply with the law and earn high returns becomes more challenging each year with frequent changes to the superannuation regulations and less predictable investment markets.

The number of self-managed super funds (SMSF) continues to grow each year. There are now nearly 600,000 funds with 1,100,000 members. They hold $656 billion of assets, nearly one third of all retirement savings in Australia.

Yet managing a self-managed fund to comply with the law and earn high returns becomes more challenging each year with frequent changes to the superannuation regulations and less predictable investment markets.

The super rules change often, including this year. From July lower contribution limits for everyone will restrict the ability to build up super quickly. Trustees will need to familiarise themselves with the new rules and ensure they comply. The Australian Tax Office says most SMSFs are not well diversified. Some trustees have sound knowledge about one investment sector but lack knowledge of others. Some have most of their money in one commercial property, often the business premises.

Some invest mainly in bank deposits. Others hold mainly direct Australian shares, usually major well-known companies. Several other investment sectors can provide strong returns long term.

Investing in overseas shares gives access to the 97 per cent of investment opportunities outside Australia. It also gives exposure to industries not present in Australia – motor vehicle and aircraft manufacturing, information technology, pharmaceuticals.

When Donald Trump was elected US President share markets in many countries fell sharply. Who would have predicted they would quickly rebound and begin a major growth surge? The Dow Jones Index has risen nearly 12 per cent since. International exposure is valuable.

Australian commercial property has performed strongly long term. It can be accessed by investing in stock market listed property funds that hold many properties. Most provide attractive income and moderate growth.

Infrastructure investments are also suitable for SMSFs. They own toll roads, pipelines, airports and loading docks. Most pay healthy and reliable income with inflation-like growth long term.

While many SMSFs hold a big exposure to Australian shares they often focus on large well-known companies. Small company shares often perform better but specialist knowledge is required to choose the right ones. Small company share funds are a good option.

By diversifying their investments SMSF trustees reduce their risks and usually increase their long term returns. However financial markets are highly competitive. It isn’t a game for amateurs. Professionally managed funds and good advice can be a big help.