Paul’s verdict

Alternatively, consider one of the big, low-cost super funds

Spoiling the grandkids is a lot of fun, Josie, and one of the best arguments I’ve heard in a while for putting some money aside for the future. But now we need to turn to what, to be quite honest, is the fairly tedious and boring bit: looking at your super options and the possible value of an SMSF.

I typically find employer-type funds are pretty good. They tend to be our larger managers and quite often the employer has negotiated a low fee structure for employees; in fact, some employers pay all the fees.

Low fees are critical and so is your selection of options inside the fund. A balanced fund is just fine. From here we get very personal, but generally it makes sense for younger people to go with a growth fund and as we age we may prefer less risk and move to balanced or conservative options.

Check what insurance you are paying for inside your fund. It depends on your own situation, but with independent kids (and I suspect you have paid off your mortgage), you may need less insurance. Remember, it does get more expensive as we age.

It really does depend on your risk profile and the sleep-at-night test, but I hope to be around for a while, so my super is still pretty much growth. With the All Accumulation Index (that is our share index plus any dividends) up some 29% in the past financial year, it was a great year for growth funds, but of course they could easily go backwards next year.

The great news is that inside your existing funds you can hold the type of assets you want. You mention Trilogy, which is a well-regarded property manager. You could certainly hold incomeproducing property assets in your current funds if you wanted to. Big super managers will have property in all their broad investment options and most will allow you to select a property option if you wish. This, I think, is the big issue in running your own SMSF or sticking with a big, low-cost super fund. An SMSF will have set-up costs, annual tax lodgement costs and all the usual running costs associated with your own legal structure. I reckon mine costs all up about $3000 a year. This is why it is generally said that you need more than $300,000 in your own fund. Personally, I’d hate to pay 1% of my fund in costs each year, so I would suggest double that. There are plenty of big funds that will manage your money for under 0.5%.

Where an SMSF works is when you are actively managing it. This could be investment property, direct shares or private equity. But what I don’t like is people setting up an SMSF, paying big costs for that and then placing the money with managers who charge more fees!

What I would like you to do is to look at the funds you have now. Review performance, fees and your insurance. You should look at a couple of the big funds such as AustralianSuper and Hostplus and see if their options may suit you in terms of conservative income, but at a very low cost.

As you can tell, I am more than happy for you to start an SMSF, but I want you to get value for the costs you pay and I am far from convinced that for a conservative investor the value is there.

You also ask about conservative income-type options. Personally, I do love my quality Aussie shares for this. Yes, I get ups and downs with the market, but the 3.5% to 4% income comes to us fully franked with no hassle. Property also does this perfectly well, as do other income-type assets such as bonds and fixed interest. I don’t know Trilogy in any detail, but it has been around for over 20 years and, very importantly, its board and executive team have substantial experience. What my eye goes straight to is projected returns. If they are very high, this will always indicate a potential scam or bunch of rogues. I see, for example, that Trilogy is showing a bit over 3% as the annualised return on its “Enhanced Income Fund”, which sounds about right. So, I think the big issue for you is whether to go with an SMSF or a big, low-cost fund. This is an important decision, so give it the time and research it deserves. Then I strongly agree with your comment to diversify outside super across income-type funds if these suit your conservative nature and risk profile. Believe me, the higher the potential returns the higher the risk. A bit of thought and research about your money plans as you move closer to retirement will pay off big time when it comes to your financial security and, of course, one of the great joys in life – spoiling the grandkids!

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