The returns which investments deliver vary from year to year and in different economic periods. Generally, shares will outperform property and both of these assets will outperform cash or fixed interest securities. This is a trend which has been identified over the past ten years. However, there are certain risks involved in share investments.
Shares

Investments in shares – known also as equities – are investments in companies. When an individual invests in shares, they become known as a shareholder.

A shareholder has some ownership in the company and its profits, and their shares can produce benefits through:

* Dividends paid when the company makes a profit
* An increase in the share price of the company, so that a profit is made when the shares are sold.

Investment features

* Generally classified as a high growth asset
* Typically earn higher investment returns over the longer term
* Experience short-term volatility based on the ups and downs of the stock market and company performance
* Best for long-term investment.

Historical performance

The graph below shows the value of $10,000 invested in Australian and international shares from June 1975 to June 2005.

Shares past performance graph

Source: JANA Investment Advisers

Expected rate of growth

High growth over the longer term. The average annual return after inflation over the 10-year period since 1996 was 12.01% for Australian shares, and 6.63% p.a for international shares. The average inflation rate during this period was 2.6%. Historically, shares are expected to have a higher growth/return over the long term than most other asset classes.

Level of risk

There is high volatility in the share market from year to year. Shareholders should be prepared to experience the highs and lows, including the possibility of negative returns in some years, to gain the higher returns that are generally produced over a longer period.

Source: JANA Investment Advisers. Figures are based on the S&P/ASX 300 for Australian shares and the MSCI World (ex. Australia) Index (unhedged) for international shares.

Self Managed Super fund (SMSF) Information

Can you hear yourself saying “Superfunds? Retirement? Those things are years away for me, right?” Time to think again. The amount of retirement funding which we have available is dependent on the actions we take now. One of the major problems with a lot of retirement funds is management fees. Fund managers and financial planners often impose a number of management and account keeping fees which eat into your retirement saving and reduce your quality of life in retirement. So how can people take control of their retirement savings and make sure people get the income they are entitled to when they retire. Self Managed Super Funds (SMSFs) provide an answer to this question. So what are they and how do they work? How can I set one up?

What is a self managed super fund?

Briefly, a super fund is short for ‘superannuation fund’ which is a set of shares, monies or property which is designed to provide support to a person during their retirement years. The legal requirements which set out a super fund have less than 5 members and each person in the fund is responsible for the operation of the trust. No person is an employee of another member of the fund unless those members are related. This is a quick dot point summary of the characteristics of a self-managed super fund:

• Has less than 5 members;
• Each individual trustee of the fund is a fund member;
• Each member of the fund is a trustee;
• No member of the fund is an employee of another member of the fund, unless those members are related;
• The trustee can be a corporate entity;
• No trustee of the fund receives remuneration for his or her services as a trustee; and
• A SMSF is registered with, reports to and is regulated by the Australian Taxation Office

How does an SMSF work?

A Self Managed super fund is like any other superfund except for the fact that it is managed by its members. The members put aside a portion of their income derived from working each year in order to fund their retirement. This money is invested usually in shares or property assets or possibly in fixed interest securities. These are financial assets which produce an income that a person can live off during retirement. Each different SMSF will have a different investment strategy according to the investors needs for income, capital growth or a combination of both.

In most cases, the trustees of an SMSF are required to prepare and implement an investment strategy for the superannuation fund. The strategy must reflect the purpose and circumstances of the fund and take into account:
• How to maximise member returns while having regard to the risk;
• Appropriate diversification in a long term investment strategy; and
• The ability of the fund to pay benefits as members reach retirement, and other costs incurred by the superannuation fund.
Trustees must make sure all investment decisions are made in accordance with the documented investment strategy of the fund.
What are my roles and responsibilities as a trustee?
The Australian Taxation Office Produces an excellent document outlining the roles and responsibilities of trustees of self-managed super funds. But briefly, as a trustee, you have responsibilities of:

• Lodging an annual income tax return and superannuation fund annual return
• lodging Superannuation member contributions statements
• appointing an approved auditor to complete the annual audit
• maintaining records for up to ten years, and complying with investment requirements.
• Some of the key restrictions under the SIS Act include: meeting the sole purpose test
• not accessing your money without meeting a specific condition of release
• not providing loans or financial assistance to members or relatives, and
• not borrowing money to invest.

There are four key steps to setting up an Australian Self Managed Super Fund:

1) Establish a Trust
The first thing you need to do is prepare a trust deed. For this you should talk to your accountant, solicitor or a legal service company. Be mindful that while your accountant or solicitor may be able to help you establish the SMSF, they cannot advise you on whether it is the right financial decision for you unless they hold an Australian financial services licence. The trust deed sets out such matters as the details of the trustees, how they are appointed, their powers and the conditions for contributions and benefit payments. You must make sure the trust deed is dated and properly executed. All SMSFs must have trustees and in turn all members of the fund must be appointed trustees. Anybody aged over 18 can be a trustee as long as they have not been convicted for an offence involving dishonesty or are undischarged bankrupts. As a trustee, you are legally responsible for the actions of the fund. Your responsibilities include filing an annual tax return, lodging member contributions statements and appointing an approved auditor to complete the annual audit. The next step is to elect to be regulated by the Superannuation Industry (Supervision) Act (SISA) in order to receive concessional tax treatment.

As trustees, you have 60 days to lodge your election with the Tax Office. You do this by completing an application form to register for the new tax system superannuation entity. This can either be done online at the Australian Business Register or by contacting the Small Business information line on 13 28 66.

2) Elect to be a regulated fund, obtain a tax file number and an Australian business number
On submitting the form above, you will be issued with a tax file number and an Australian business number. Once you have elected to be regulated, then the decision cannot be reversed without winding up the fund.

3) Prepare an investment strategy
Preparing an investment strategy is the next step. This involves formulating a strategy that takes into account risk, return, diversification, liquidity, cash flow, asset allocation and the ability to discharge existing and prospective liabilities. It is here that you may need the help of a licensed financial adviser to steer you in the right direction.

4) Open a bank account
The account must be opened in the name of the fund to keep your superannuation fund assets separate from your personal assets.

There you go! You have set up your very own Self Manager Superannuation fund, so what are you waiting for?