With most public offer and industry funds, when contributions are received they are immediately invested according to a previously nominated investment strategy.

A SMSF allows the separation of the contribution strategy from the investment strategy, enhancing the flexibility of your investment risk management.

A decision to make a large after-tax contribution now does not commit you to immediately investing those funds. The timing of any investment will be driven by your independently determined investment strategy.

But not for everybody …

While there are potential benefits of a SMSF, there are some downsides. There are the significant responsibilities and obligations you take on as trustee.

And the costs of running an SMSF can be higher than other structures. Generally, we think it only makes sense to set up an SMSF if the projected super benefits are expected to exceed $1 million (in today’s dollars).

While the Australian Tax Office recommends a minimum balance of $140,000, we think this only makes economic sense if your benefits are expected to grow substantially. Any decision should be heavily based on your expected future superannuation position, rather than where you are now.

Ultimately, the decision to set up an SMSF is quite personal. A cost/benefit analysis is useful but may not be conclusive. Many of the perceived benefits are not easily measured in dollars and cents.

One thing we do advocate is making an early decision. The earlier you choose the right structure, the more chance you have of maximising the benefits.

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