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The benefits and risks of using your SMSF to invest in shares

We explain the rewards and the risks of investing in shares via your SMSF.

Many people set up an SMSF because it allows them to take control of their investments. When managing your own super, it’s important to look at both the benefits and disadvantages before diving into the share market.

The great thing about having an SMSF is that you have more control over where you invest your retirement funds. For many SMSF trustees, having a portion of their retirement savings invested in shares is a popular option, given their significant potential to grow wealth over time.

Here are some reasons for investigating the share market.

You can keep costs low

As with all investments, doing your research will set you on the right path – and there are numerous ways to buy shares cheaply.

Like other investors, people with SMSFs can use an expert such as a broker, fund manager or financial adviser to invest on their behalf into a range of investment vehicles. These include:

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    Australian Shares and ETFs
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    International Shares
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    Managed Funds
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    Listed Options
  •  
     
    Listed Warrants
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    Foreign Exchange

Please visit our Website for more information.

Using SMSF to invest in shares

Make sure you investigate the different products available, because you could save on the all-important fees and charges.

Shares provide access to liquidity

A great benefit in having shares is that they can bought and sold relatively easily to meet unexpected financial commitments. If you have bought shares direct, it can be as simple as calling your broker or completing a trade online.

After you sell shares, the legal title of ownership is exchanged and settlement occurs three business days after the trade takes place.

If you hold shares indirectly via a managed fund or other investment vehicle you can also sell your units, but before doing so don’t forget to check whether there are any withdrawal costs.

You could save on tax

The income of your SMSF is generally taxed at a concessional rate of 15 per cent if your SMSF is a complying fund that follows the laws and rules for SMSFs. The most common types of assessable income are:

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    Assessable contributions.
  •  
     
    Net capital gains.
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    Interest.
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    Dividends.
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    Rent.
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    The income from shares may be fully franked, which means it carries a 30 per cent tax credit. The difference between the flat SMSF tax rate and the tax credits could then be refunded to the SMSF.

There are other potential tax savings from having an SMSF with an investment in shares:

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    For SMSF investments that have been held for more than year, only two-thirds of any gain is taxable. This means that holding long term could be beneficial to an SMSF trustee.
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    If you are in a retirement phase pension mode, SMSFs do not pay tax on capital gains or investment income.

While there are numerous benefits in investing in shares, there are some important things to consider before diving into the share market.

Beware of unexpected events

While shares can provide you with long-term and capital gains for your SMSF, you don’t have direct control over your assets.

Here are some things to consider before investing in shares:

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    Share prices can fall dramatically – and they can even drop to zero.
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    When companies fail, some shareholders can be the last in line to get paid, so there is a chance that you may not get your money back.
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    Don’t forget that the value of your shares will fluctuate from month to month and the dividend that you receive may vary.
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    Get your investment strategy right.

It’s important for everyone with an SMSF to have an investment strategy before investing. It’s a good idea to put it in writing and review it regularly.

When deciding how to set up your SMSF and whether shares have a place in it, consider:

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    The type of shares you want and how you are going to manage them.
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    That while there are no rules saying you can’t have 100 per cent of your SMSF invested in shares, a diversification of assets may be a better solution.
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    The liquidity of the share assets and how easily they can be converted to cash to meet unexpected expenses.

For those with an SMSF, investing in shares is great option to build your retirement nest egg, but as with every investment, it’s important to weigh up the rewards and the risks. With proper research and a good investment strategy, the share market could be a lucrative option.

If you want to learn more about SMSFs, download an information pack. If you’re ready to establish an SMSF, you can apply now with ESUPERFUND.

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