Getting Started with SMSF Investing: Terminology and Resources

Getting Started with SMSF Investing: Terminology and Resources

Getting Started with SMSF Investing: Terminology and Resources | Financial Mappers

In this article, we take a look at the best places to go for more information about managing your own superannuation fund and some of the key terms you need to know to get started with SMSF investing.

Where do I begin?

Without any prior experience in managing your own investments or SMSF, it can be easy to feel overwhelmed and stressed out by financial terminology. For example, what is ‘capital gains tax’ and ‘salary sacrifice’? What about ‘asset classes’ and ‘beneficiaries’?

Not too sure? Don’t worry, we are here to help!

Here are 5 key terms we think you should know before diving into a new SMSF investment:

1. Beneficiary
A beneficiary is the owner of the SMSF and the person who receives the benefits of the fund. In other words, they are whom the assets are being held for.

2. Contribution
A contribution is money paid into your self-managed super fund by either you or your employer. All contributions are safely guarded until you reach a certain age, referred to as your Preservation Age. The Preservation Age, will depend on your date of birth, but the aim is to raise the age to 60 over time. There may be penalties if you withdraw the funds before you reach your Preservation.

3. Salary Sacrifice
Salary sacrifice is an arrangement with your employer to forego a percentage of your salary. Instead of being paid directly to you, this percentage will be paid into your superannuation fund. As a result, the sacrificed portion of your total salary package is not counted as assessable income for tax purposes.

4. Capital Gains Tax (CGT)
CGT is tax that is payable on the profit of an investment sale. For example, whenever you sell an asset like property, shares in a company, or a collectable item (e.g. paintings, postage stamps, antiques, etc.), you will pay a percentage of that sale to the tax department. You can read more about CGT on the ATO website.

5. Asset Classes
An asset class is a specific category of investments. The four most common asset classes are cash, fixed interest, property and shares.

  • Cash
    Cash generally refers to investments like bank deposits which have a short investment time frame and a low risk. Cash investments can provide you with a moderate income in the form of regular interest payments, but have little chance of ever making a high return.
  • Fixed Interest
    Fixed interest investments are usually in the form of bonds or debentures. They are loans that you provide to corporations and government bodies in return for interest payments over the life of your investment. Most bonds carry a low to medium risk and generally reward investors with a higher return than cash investments. The interest earned on the security remains fixed, but the value of the security will rise or fall as interest rates changed. If you sell your bond when interest rates have risen, the value of the bond will be less than its Face Value when you sell it.
  • Property
    Property investments are considered ‘growth assets’. They can include commercial or residential properties, and investments listed in Real Estate Investment Trusts (you can read more about REITs on the Australian Investors Association website). Because properties are growth assets, you can usually expect capital gains over the long-term, as well as additional income from regular rent payments.
  • Shares
    Shares, or stocks, are assets that represent ownership of a company. The value of shares can fluctuate with economic and industry conditions. As a result, they are the riskiest type of asset class. However, well-managed companies in the right industry can achieve high growth in value and earnings over time, so the potential for capital gains is equally as high as it is risky.

Tools and resources to help you get started:

Online resources:

Books

  • DIY Super for Dummies by Trish Power
  • The Ultimate SMSF Trustee’s Guide by Reece Agland
  • SMSF Guide (7th edition) by Jemma Sanderson
  • The Ultimate Guide to SMSF Investment: How to Protect and Safely Grow Your Wealth Via the Share Market by Chad Burgess and Luke Cummings
  • SMSF DIY Guide by Sam Henderson

Financial Mappers
Financial mappers is a cloud-based, wealth mapping platform that may be of particular interest to SMSF holders. You can learn more about it by visiting our website, or watching our SMSF video.

 

Disclaimer: Financial Mappers does not have an Australian Financial Services License, does not offer financial planning advice and does not recommend financial products.

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