Over the years I have had the privilege of watching the creative and sometimes ingenious ways people with a SMSF invest their money, to say this has been inspiring would be an understatement.
In this article I hope to share with you some of the more interesting and ‘outside the box’ methods I have witnessed, that these pioneering investors use to escape the ‘norm’ and take control of their financial future.
Firstly, the benefits of a Self-Managed Superannuation Fund – SMSF offers significant tax advantages, gives you greater control over your impending retirement, and also offers a range of Investment options and diversification not easily found in managed funds.
This latter benefit is truly one of the biggest advantages of having a SMSF, it never ceases to amaze me the creative ways people find to diversify the investments within their SMSF.
Apart from the more common assets an SMSF would typically invest in such as Shares and cash term deposits etc., some owners of SMSFs have learned to be very creative in how they invest their funds, still achieving good returns and diversification at the same time.
Some examples of the more creative investments I have seen have included cheaper versions of property investments that didn’t require a loan, such as individual car parking spaces and boat moorings in boat harbours which they then rent out to generate income for the SMSF, allowing them to achieve a regular return from a small outlay property investment.
A similar idea has included investments in items such as shipping containers which then are used to lease as storage containers for regular income.
Of course some owners of SMSFs have preferred to invest in the finer things in life, and some of the more interesting of these have included precious metals such physical Gold Bullion and Silver bars, and precious gemstones such as pink diamonds and rare coins etc. , that were independently valued and considered rare, hard to find and likely to increase in value.
These assets were required to be stored securely with a third party,usually within a secure vault which incurred storage & insurance costs, and required members of the SMSF investing in these products to follow SIS acts “Sole Purpose Test” (s62) and abide by the SIS acts “Arms Length Rule” (s109) at all times.
Sounds nice doesn’t it, but imagine the frustration of not even being able to play with your own pink diamonds or stack your own gold bars!
Another investment area that I would consider a little out of the norm that has become increasingly popular with SMSFs has been Exchange Traded Funds – ETFs.
ETFs are also listed and traded on the exchange, units are bought and sold within the fund just as you would a normal share, but offer a lot more diversification, are professionally managed by a fund manager and are regulated by ASIC as a ”Managed Investment Scheme”- MIS.
Australian ETF fund managers must comply with MIS rules and regulations giving investors a little more peace of mind in terms of how their investments are being managed.
At the time of writing there were 155 ETFs listed on the ASX, some examples of the different types of ETFs currently available and the kind of diversification they can offer investors include;
- ETFs that attempt to track the performance of the ASX 200 index, and
- ETFs that track the opposite direction to the ASX 200 index and actually increase in value when the ASX200 is falling, – often used as a way of hedging the value of a portfolio shares.
- ETFs investing in a parcel of high dividend yielding fully franked stocks, allowing investors to receive regular income and franking credits sometimes paid out monthly.
- ETFs attempting to track the value of international indices like the S&P 500, the Nasdaq and European Indices like the S&P European 350 index, as well as Asian indices like Japan’s Nikkei 225 and various others.
- ETCs (exchange traded commodities), which allow diversification into commodities like Gold, Silver and Oil by investing into physical Gold and Silver, or Oil futures
Some ETF providers even currency hedge their international ETFs against the exchange rate difference between the Australian and US Dollars, helping to remove one of your biggest risks when investing in international markets
The ETFs I have described in this article are just a small sample of what’s available and listed on the ASX and so I encourage you to do more research on them to see if any suit you and what you are trying to achieve with your investment portfolio. Your broker or the ETF provider’s website are great starting points for this.
For those of you looking for a more detailed lesson on ETFs here is a link to a video recording I have done on this fascinating product.
Exchange Traded Funds – ETFs Video Tutorial:
Whilst the article has attempted to highlight some of many creative investments people have used within their SMSF, it’s important to remember the most successful always ensured their portfolio was well diversified across a number of asset groups to minimise risk..
I hope you have enjoyed reading this article as much as I enjoyed writing it, as it was inspired by many of the brave and creative individuals who took on the challenge of creating and managing their own SMSFs, and I have had the privilege of watching over the many years I have worked in the financial services industry.
Good luck with your investments and remember to occasionally think outside the square!