Why are SMSFs gaining popularity?

Category: Finance 2

What is a Self- Managed Superannuation Fund or SMSF? To answer this, first, you need to understand what a Superannuation is. A Superannuation is a money that gets set aside while you are still employed for your retirement. This means that you have to nominate that a certain portion of your salary is redirected to the fund. The money set is invested in different assets or used to buy certain assets like precious metals to help grow the balance to ensure that the member has the best possible return. The point is to make sure that you have money to live off when you retire.

A Self-Managed Superannuation Fund should consist of less than five members and these members are responsible for its management. The members act as trustees. The administrator will be responsible for the fund’s administration and legal compliance. There are certain rules that the fund’s members are required to follow. These rules include the paying of contributions upon a member’s death retirement or death, which assets they can invest in, how meetings are held, who the trustees are, and all other matters that affect the SMSF. Members can choose to invest in a variety of things and even buy SMSF gold to boost returns.

A Self- Managed Superannuation Fund is a special type of trust and it is taxed under special tax concessions. There are three parts that are important.

  • The Trustees
  • The Trust property
  • The Beneficiaries, or members

The conduct of trustees determines the fund’s tax concessions.

When it comes to investing in gold or buying gold for Superannuation, there are certain rules that need to be followed. Trustees must also have an established investment strategy that reflects the objectives of the fund. There has to be a clear goal, otherwise

Why buy SMSF gold?

  • Gold is unique. It is a highly liquid asset that is very scarce. Gold does not carry counterparty risk and it can play an important role in an investment portfolio.
  • Gold acts as a hedge against inflation, deflation, and risks that come with fiat currencies. Gold can be used to mitigate losses when the market is under stress. It’s a great investment portfolio diversifier.
  • Gold is an effective diversifier and a vehicle to mitigate losses in times of market stress. It can serve as a hedge against inflation and currency risk. Gold has had a negative correlation to stocks and bonds.

Recent history shows this:

The 1980s and 90s were good for the stock market but gold was really struggling. In 2008 the stock market went through its worst drop in a decade but investors turned to gold. In 2019, the Corona Virus sent stocks plummeting and people turned to gold. But the pandemic also affected the supply chain. Whilst more people flocked to buy SMSF gold, there was a shortage because of the disruption in the supply chain.

  • Compared to other financial assets, gold has very competitive returns. There are downsides and advantages.
  • Gold offers more protection and delivers an even more positive performance than other major asset classes.
  • Over time, fiat currencies – including the US dollar – tend to fall in value against gold.

The bottom line is that a superannuation fund should have an array of investments including investments in precious metals like gold, first because it behaves better in times of crisis. A diverse investment portfolio can mitigate volatility and risk.