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Best SMSF Investments

Choosing the best SMSF investments can be a daunting task with variables such as ASX listed funds Australian bonds Global 100 ETFs and property markets to consider.

Yet it’s essential for fulfilling retirement goals ensuring financial security and balancing risk capacity.

The investment strategy can become complicated considering the excess of choices like Australian share ETFs diversified bonds ETF audits Vanguard Australian Shares High Yield ETF and so forth.

But what are the most favourable options?

How can you build a diversified portfolio that would cater to your financial and retirement needs?

Best Smsf Investment Strategy For Income: ETFs

With dwindling returns on term deposits and reduced SMSF loans for investment properties Exchange Traded Funds (ETFs) have seen a rise in popularity amongst SMSFs. Vanguard Australian Shares ETF (VAS) and Vanguard Australian Shares High Yield ETF (VHY) serve as the best SMSF investment strategies for income owing to their consistent historical dividends yields of 4.6% and 6.2% respectively.

  • Vanguard Australian Shares ETF (VAS): This ETF is designed to track the return of the S&P/ASX 300 Index allowing SMSF clients to gain exposure to Australian shares and generate consistent income from dividend yields. It is suitable for investors who aim for long-term capital growth and wish to diversify their SMSF investment portfolio.
  • Vanguard Australian Shares High Yield ETF (VHY): VHY replicates the returns of the FTSE Global Yield Index which includes high-yielding Australian shares offering higher dividend payouts to investors. It is ideal for those SMSF clients who primarily focus on income generation.

Best Smsf Investment Strategy For Capital Growth: Global ETFs

For investors seeking capital growth global and emerging market share ETFs are often identified as prime choices. Funds such as Global 100 ETF (IOO) and iShares MSCI Emerging Markets ETF (IEM) have shown potent capabilities of strong growth over the past five years.

Fund Details Benefits
Global 100 ETF (IOO) Tracks the performance of 100 large-cap companies worldwide. Access to global markets like US Japan Germany etc. to drive capital growth.
iShares MSCI Emerging Markets ETF (IEM) Tracks the MSCI Emerging Markets Index providing exposure to developed and emerging economies. Leverage rapid growth in emerging markets for enhanced capital returns.

These ETFs have shown robust performance historically hence suggesting their potential as part of the best SMSF investment strategies for capital growth. However to truly benefit from these investment vehicles diversification across a range of ETFs is recommended to balance risk return and diversification.

It’s also crucial to keep an eye on market volatility risk capacity and investment horizon when setting up your SMSF investment strategy.

Best Smsf Investment Strategy For Capital Protection: Bond ETFs

The best SMSF investment strategy for capital protection involves high-grade Bond ETFs such as the iShares Core Composite Bond ETF (IAF) and the Vanguard International Fixed Interest ETF (VIF). These ETFs listed on the ASX provide a hedge during periods of market volatility with their fixed coupon payments and lower risk profile.

Investing in Bond ETFs effectively diversifies your SMSF investment portfolio and aids in capital preservation. The focus of these investment vehicles is on capital returns and not just income return hence they offer a secure investment avenue.

Considerations for Bond ETFs

  • Bond ETFs offer interest rate protection due to their inverse relationship with interest rates.
  • While Bond ETFs offer lower returns compared to equities they exhibit lower volatility.
  • Consider professional advice from an investment advisor or financial planner to understand the investment horizon and risk capacity of your SMSF before investing.

Top 10 SMSF Strategies

According to SuperGuardian, there are 10 SMSF strategies.

1. Pension as a Lump Sum

This method involves:

  • Making a tax-free lump sum withdrawal of the minimum annual pension, up to $185,000 (2014/15) over one’s lifetime.
  • Choosing this instead of a taxable income stream payment for people aged under 60.

Who Is It Suitable For?

– Ideal for individuals aged 55-59 with unrestricted non-preserved balances and account-based pensions.

2. Multiple Pensions

This strategy involves:

  • Crystallizing taxable and tax-free pension components.
  • Prioritizing the rundown of the pension with the highest taxable component when drawing excess payments.
  • Leaving the pension with a higher tax-free component for beneficiaries upon member’s death.

Who Is It Suitable For?

– Ideal for members making large, single transaction contributions.

3. Pension as a Lump Sum

This method involves:

  • Making a tax-free lump sum withdrawal of the minimum annual pension, up to $185,000 (2014/15) over one’s lifetime.
  • Choosing this instead of a taxable income stream payment for people aged under 60.

Who Is It Suitable For?

– Ideal for individuals aged 55-59 with unrestricted non-preserved balances and account-based pensions.

4. Spouse Contribution Splitting

This strategy offers:

  • The chance for a superannuation member to split up to 85% of their annual concessional contributions with their spouse.
  • The opportunity to balance retirement benefits between the member and spouse, leveraging current tax concession rules.

Who Is It Suitable For?

– Best suited for couples wishing to transfer a portion of their eligible contributions to their spouse.

5. Registering for GST

This involves:

  • Voluntarily registering an SMSF for GST to claim back input taxed credits on certain fees like administration, advice, and share brokerage.
  • Enabling the fund to refund 75% of the eligible input tax credits from the ATO when submitting the business activity statement.

Who Is It Suitable For?

– Best for SMSFs incurring large eligible expenses subject to GST.

6. Business Real Property

This option provides:

  • The opportunity for small and medium business owners to have their business premises owned by their SMSF.
  • Rental income from the property taxed at a maximum rate of 15% or 0% if the fund is in full pension mode, limiting the capital gain to 10% or 0% if the property is held to retirement.
  • Additional benefits in terms of asset protection.

7. Who Is It Suitable For?

– Perfect for small business owners who own their business premises.

Direct Fixed Income

This presents:

  • The opportunity for SMSFs to invest in direct fixed income securities not available through other super structures.
  • Options including direct corporate bonds and ASX listed hybrid securities which can be utilized to increase the income generated by the SMSF portfolio.

Who Is It Suitable For?

– Ideal for retirees with a moderate tolerance for risk.

8. Borrowing

This enables:

  • SMSFs to borrow money for the purchase of a single acquirable asset (like a property), or a collection of identical assets with the same market value (like a parcel of shares), via a Limited Recourse Borrowing Arrangement (LRBA).
  • The lender’s recourse to be limited to the single asset, offering potential benefits like leverage, tax advantages, and asset protection, albeit with associated risks.

Who Is It Suitable For?

– Ideal for experienced property investors capable of servicing the loan in their SMSF.

9. In specie Transfers

This process involves:

  • An individual contributing to their SMSF in the form of a parcel of listed securities or business real property, with no exchange of money or cash.
  • The transfer triggering a CGT event for the individual making the contribution. However, once the asset is within the SMSF, the income and capital gains generated will be taxed concessionally or may even be tax-free when the fund is in full pension mode.

Who Is It Suitable For?

– Ideal for investors who hold shares or property outside of super.

10. Segregation of Assets

This approach enables:

  • Specific assets to be attributed to each member account.
  • Assets with large unrealised capital gains (like business real property planned to be sold at retirement) to be specifically moved into pension phase, resulting in tax-free earnings for that investment.
  • A contrast to pooling the investment with other assets, which could potentially result in a proportion of the gain being taxed if a member is still in the accumulation phase.

Who Is It Suitable For?

– Suitable for SMSFs with members in both pension and accumulation phase, or where members desire specific identifiable assets linked to their account.

Smsf Asset Allocation

Asset allocation is paramount in creating an effective SMSF diversification strategy. Assets should be distributed across multiple asset classes like stocks bonds property cash and even alternative investments.

It’s imperative to understand your retirement goals investment options risk tolerance and cashflow needs to craft a personalized portfolio.

Types of Asset Classes for SMSFs

Asset ClassBenefits

Stocks Potential for capital growth dividend payments and tax benefits from franking credits.
Bonds Stable income via fixed interest payments and capital protection.
Real Estate Steady rental income potential capital growth and diversification.
Cash Liquidity and stability albeit lower returns due to currently low interest rates.

While diversifying your SMSF investments don’t forget the importance of frequent portfolio reviews and rebalancing in accordance with changes in market conditions and your investment returns.

Grow Your Wealth

As an SMSF trustee you’d want to see your wealth grow over time from a pool of best SMSF investments. If term deposits have been your go-to for income you’d notice returns dwindling recently. ETFs on the other hand have exploded in popularity with their assets growing from $30 billion to $135 billion in Australia within five years.

Investing in Australian share ETFs such as Vanguard Australian Shares ETF and Vanguard Australian Shares High Yield ETF could be the best strategy for income offering historical dividend yields of 4.6% and 6.2% respectively. Plus they’re an excellent way to diversify your SMSF investment portfolio.

VIF and IAF high-grade bond ETFs provide a pocket of safety in times of market volatility effectively adding a portfolio cushion. Consider investing in these for capital protection and consistent performance over the long term.

Stockspot portfolios have shown exceptional performance besting over 97% of similar funds over 1 3 and 5 years. They might be worth considering for your SMSF investment and Stockspot even offers free assessment and recommendation for SMSFs.

Investment Strategies for SMSFs

When it comes to investment strategies for SMSFs diversification is key. Ensuring your investment portfolio includes a broad variety of asset classes such as stocks bonds and real estate can help balance risk and return.

  • Australian shares: These can yield strong long-term returns with the ASX outperforming many global indices. Popular shares among SMSF investors include Telstra Apple and Google.
  • Fixed income investments: Government and corporate bonds are a stable choice offering predictable income streams particularly for those seeking fixed coupon payments.
  • Property investment: Both residential and commercial real estate offer potential for capital growth and tax advantages. However bear in mind that lenders have lately been more reluctant to provide SMSF loans for investment properties.
  • Infrastructure investment: Assets like toll roads or airports can bring steady income and good long-term returns. Consider global infrastructure ETFs for a diversified exposure to infrastructure.

Aside from these alternatives like artwork or collectibles could offer significant returns and enhance portfolio diversification. Keep in mind however these typically require more knowledge and understanding of the sector.

Regardless of the chosen investment strategy regular portfolio assessment and rebalancing are essential. Understanding your risk tolerance and investment horizon is crucial as well.

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