Investment Strategies For Retirement: Maximizing Return And Minimizing Risk

1. Examine the clients’ stated goals and objectives for each of the following questions and issues they have raised and, after analysis, consider appropriate responses.

The questions and issues raised by the clients are important in the development of appropriate strategies you believe the clients should be considering. Those questions to which the clients require a specific response should be addressed in your SOA. All goals, issues and directions raised by the clients form the agreed scope of your advice to the Suttons.

2. Complete an SOA that incorporates, in a coordinated and communicative way, the strategies the clients should be adopting and suitable responses to each of the questions the clients want you to address. Your SOA should also conform to the content and structure of an SOA and its component parts as described in Topic 8 and the sample SOA.

Assessment of Graham and Anna's requirements

During my assessment, I have concluded that Graham is having the objective to invest all the surplus cash which the couple generates into a managed fund in order to have a secured and regular income to meet their expenses during post-retirement life. Our suggestions for the client’s future goals and objectives, as detailed below, has been evaluated on the basis of the data and facts provided by the client, asserts Brunhart, (2008).

1. Graham and Anna have the desire of retaining their current lifestyle and living standard even after retirement. This means that they will continue with their current major expenses, including maintenance and insurance of their car.
2. Graham and Anna are not expecting an increment in their salaries nor are they planning of changing their jobs after this change to Perth. In my assessment, they will like their income to keep pace with Average Weekly Ordinary Time Earnings (AWOTE) index till they retire in another 9 years.
3. This means that they will be keeping their salary income fixed at $195,000 and $52,000 per annum till they retire. Although, in my assessment, Graham would like that their income from the rental properties rises at an annual rate of 5%.
4. The couple is effectively covered for life insurance and Total and Permanent Disability (TPD) and are not interested in taking any new cover.
5. Both are maintaining fine health and they do not require medical services in near future. Although I would suggest Graham to get his medical check-up and submit a fresh report showing his change to non-smoker category.
6. My advice to Graham would be to pay-off their Wollongong home loan balance of $217,000 before the couple retires as this decision will make their post-retired living more comfortable.
7. The couple’s decision of buying a home in Perth as their main residence, after converting their Wollongong residence into a rental property, is a good move.
8. I have also assessed, after talking to Graham, that he has the desire to fix his income at a minimum of 6% during his post-retirement period.
9. I suggest that the couple should achieve this by investing in good market oriented funds. This will allow the couple not only in having secured earning in their post-retirement life but will also help to adjust their expenses with inflation.

After making an assessment of the couple’s requirements and also keeping in mind the couple’s balanced and stable approach towards growth for their investments, I suggest the following investment options for the growth of the couple’s investments and for providing them a steady income in their post-retirement life, as per Ashhurst, (2009).

Although it is not considered mandatory, listed companies still prefer to pay dividends to their shareholders. Below are some of the best options in the prevalent system which can earn good income through these managed funds and dividend paying stocks, as per Ezra, Collie & Smith, (2009).

An investor calculates the ‘Dividend Yield’ as the income from a stock and from my experience I know that this income will depend on market price of the stock. All investors chose stocks for their investments which offer a high dividend yield. Since the yield depends on the share’s market price, in case the price falls, the dividend payment also falls, assert Hallman & Rosenbloom, (2003). An increase in the dividend yield will show that more investors have started investing in that particular stock and hence there is an increase in its market price. Keeping this theory in mind, many companies have started paying fixed dividends but still, the fluctuation in the share price in market dictates the dividend yield of the share, as explained by Lange & King, (2009).

Payment of dividends by listed companies has always depended on their share’s market value. On the other hand, dividends payments of Managed Fund are always calculated on the market value of ‘A Basket of Stocks’. On these basis, the Managed Funds are paying their dividends either on a ‘Variable’ or a ‘Fixed’ rates to the investors who invest in their portfolios of ‘Basket of Stocks’, explain Hallman & Rosenbloom, (2003). On these basis, the Managed Funds are in a position to pay steady and regular dividends to the investors and have been seldom found in failing on the payment system, as the payment is based on distribution of an ‘Average Yield System’ income earned by them. However, I still advise all my clients to carefully read the terms and conditions before making any investment in Managed Funds, since the investor is required to authorize the management of the Managed Funds for selling any stock or bond, which is owned by the Managed Fund on behalf of the investor, to fulfil their minimum payment guarantee condition, as detailed by Gitman, Joehnk & Billingsley, (2010).

Options for growth of investments and steady income

Those Managed Funds which have the strategy to actively trade only in stocks and bonds which pay dividend are called Closed End Funds. A Listed Companies pays dividend on a quarterly basis, but a Closed End Fund pays dividend on annual basis, asserts O’Shea (ed.), (2004). In this way, a Closed End Fund earns quarterly but pays at the end of the year. The fund earns four dividends in one financial year but pays only one to the investor. My advice to my clients is not to invest in these type of funds as they have a high risk factor, as per Vice, (2010).

It has been stated by Graham that his redundancy payment, after tax, from BlueScope Steel will be $175,000. He would seek a suitable investment strategy for this money, so that his money is safe and secure and yields him good returns post-retirement, as per Alexander & Fogarty, (2009).

After his retirement from BlueScope Steel, Graham is also expecting release of about $370,000 from the BlueScope Steel Employer Fund. According to Graham, this current value amount from the Super Fund carries a Tax Free Component of $22,000 and a Taxed Component of $348,000. He is also seeking advice on how to securely invest this amount for a secure and better yield in his post-retirement life, assert Nethercott, Devos & Richardson, (2010).

Till the time Anna was in service, she had accumulated a Super Fund balance of $43,000 in CareSuper Industry Fund. Now, since she has decided to undertake employment again when the couple shift to Perth, Graham and Anna are interested in safe investment of this amount with a high-yield source during their post-retirement period.

In the income year 2011-12, Graham and Anna had invested in three rental income properties, over an 18 month period. Two of these are residential properties, located in Gold Coast and the third is an industrial property in Brisbane. Now that they are shifting to Perth, the couple is interested in letting-out their residence in Wollongong, thus creating their fourth rental property. The couple has declared the following as the purchase price of these four properties.

1. Gold Coast: Unit-1 $159,000
2. Gold Coast: Unit-2 $268,000
3. Brisbane Industrial Property $385,000
4. Wollongong Residence $310,000

Graham and Anna have life insurance cover through their respective Super Funds. They have also got cover of life and Permanent Disability Cover (TPD) through private insurance companies. The couple is assured that their insurance coverage is adequate and they do not wish to have any further guidance on this subject. However, they would welcome advice on how the insurance policies perform.

Dividend-paying stocks for generating a reliable income

I suggest to my client’s that compared to the dividend paying bonds or stocks, certain managed funds also pay interest on the funds invested by the investors. In certain cases, some companies and government agencies also promise fixed interest amounts on the investments made through bonds issued by them. Provisions of Australian Securities and Investment Corporation (ASIC) also put certain restrictions on such companies/agencies under which they are obliged to pay amount of interest before they declare dividend on their stocks. Hence, the investments of our clients is more secure under this interest paying option, both from view point of income earning and secure investment, as per Barkoczy, (2011).

A ‘Certificates of Deposit’ (CD) is also issued by some companies and financial institutions. This is an instrument which, when placed for a fixed period of time, gives the investor a guaranteed interest income, which is higher than any other rate of interest. If my clients wish to play safely (such as conservative investors), then in my opinion, with this type of investment they can have a regular income, although it may be a low one, as per Barkoczy, (2013). But I would surely recommend these securities for their peace of mind. This type of investment is also good for the moderately aggressive investor, who has the desire of investing their funds for a longer period and also re-invest the interest they earn, with the aim that their investments grow steadily over a period of time, say ten years, and their money also remains safe, asserts Barkoczy, (2013).

In my opinion, dividends and interests are not the only two options available for safe returns in stock market. In my log career as an investment advisor, I have come across the many options which are available to investors, and I am discussing them below for your perusal, as detailed by Barkoczy, (2015). I have seen that these investment options give a clear advantage to investors over other regular investment options in the stock market as the investor can withdraw their investment at a comparatively short notice, and without foregoing any part of their investment as loss for making a preponed withdrawals, as per Barkoczy et al, (2010). I am of the opinion that these options are most suitable for conservative as well as moderate investors, as these investors keep their aims focussed on not:

• losing a part of the principal investment;
• Entering for shorter periods in the stock markets; and
• linking their investments with the inflation effect.

This is the most practised mode of investment, especially by the conservative investors, as they find that although the growth and income is moderate but their investment is safe. It is also good for those investors who have the desire of having ready access to cash and most importantly they are not looking for fast growth and high yields, explains CCH, (2015).

Managed funds for providing steady and regular dividends

The operations of these funds works on the guidelines framed for mutual funds, although they focus their investment strategy on Currency Trading. Their mode of earning is from fluctuations in different currencies and although they pay good returns, they do not guarantee fixed returns. Hence, I always advise my Aggressive investors to go for such type of funds, since the yields come with high risk elements, the growth period is long, and can prove good for the investor if they keep reinvesting their monthly dividends, as per Smith & Koken, (2011).

Across the globe, all government’s issue financial instruments, such as bonds and sureties. These are guaranteed by the authorities, for repayment, and also offer a fixed return over the fixed period of the instruments. The advantage of investing in such instruments is their small initial investment amount and also the safety of guarantee by the respective governments, although I find that they are not suitable for aggressive investors, as compared to the moderately aggressive investors, asserts Deutsch et al, (2011).

On the lines of certain mutual funds, these type of Trusts invest in real estate projects only. The dividends earned by them are dependent on the rental income which are generated by the investment properties, as per Marsden, (2010). This is considered a safe investment option by the investors and the fund managers, although the value of the investment properties seldom shows an increase and their income levels are low, at these are of cyclic nature, as per Renton, (2012). REITs are usually traded on stock exchange but may also have client base of private investors, who do not go through the rigours of stock exchange and hence participate directly.

Investor trade mostly in common stocks when trading on the stock exchange. These stocks are issued by the companies for the general subscribers. Companies also issue ‘Preferred Shares’ and these are classified shares, having preference over the ordinary shares, for the purpose of dividend and interest payment, or for buy-back options, says Hanks, (2007). In case the company declares bankruptcy, it has the obligation of settling the Preferred Shares first and also when paying dividend or interest, the preferred shareholders are to be paid prior to paying the ordinary shareholders, although the interest payments to investors have to be settled before making any other payments, as per Gitman, Joehnk & Billingsley, (2010).

Nowadays, the Mutual funds are acting focus-oriented. Focus is on issue-based investments, and the investors/fund managers are concentrating mainly on specific fields, where they can use their expertise which relates to the specific field, as detailed by Lange & King, (2009). Retirement Income Funds are also dealing in such specialised fields, and their focus is to cater to the needs of retired employees and businessman. Since their focus is only on retired persons, these funds work with specialists who understand the income and safety needs of the retirees and on these basis they invest only in stocks which guarantee a consistent payment and are safe for the investment made, explains Ashhurst, (2009).

Managed fund payments based on average yield system

The risky but high-yield giving funds are mostly sought after by those investors who plan a long range investment strategy with high volumes on investments in the markets. These investors focus on earning high interest rates and look for high dividend payments. To achieve such targets, they make high-yield investments for long periods, keeping an eye on high growth potential for their investments, as per Ezra, Collie & Smith, (2009). I strictly recommend such investments for investors who are highly aggressive in the market. To cover their loss making investments, these investors have the tendency of availing the ‘Selling Covered Calls’ options for the loss making stocks. This facility is available from those stock brokers who are booking purchases of stocks at pre-determined prices for a fixed holding period, details Vice, (2010). It is a highly speculative buying process, as the buyer is buying on the hope that the stock will turn around from its recessionary period and can be expected to go beyond the buying price. Such deals are undertaken by the highly aggressive investors, who have the tendency of high speculative trading and are always on the lookout for a long term investment which can give a high growth to their investments, assert Smith & Koken, (2011).

This investment option offers something for all types of investors. The investor has the choice of selecting from the many variants available and any one can be chosen by the investor to build-up a portfolio that suits their needs and is suitable for their investment style, as explained by Brunhart, (2008). A conservative investor can build a portfolio consisting of a high percentage of low-yield-steady-growth-low-risk stocks and a low percentage of high-yield-high-growth-high risk stocks. On the other hand, a moderate investor can build-up a portfolio which contains an equal percentage of both the above noted options, explains Hinden, (2000). Although from my experience, I can say that a moderate investor will always keep changing the percentage of the two factions while keeping pace with the changing trends of the market. A moderately aggressive investor will always build a portfolio which has an element of caution and which suits his tendency of playing aggressively. Hence, says O’Shea (ed.), (2004), such an investor will keep a lower percentage of the low-yield-steady-growth-low-risk stocks and a higher percentage of high-yield-high-growth-high-risk stocks. In the end one can find the aggressive investor, who always holds a fantasy for high-growth investments. He will keep his options clear and precise, as he is not looking for any immediate returns and can easily wait for a plus-10 year investment period. So he will build a portfolio which will comprise 100 percent of high-growth-high-risk stocks, as per Hallman & Rosenbloom, (2003).

Closed End Funds: a high-risk investment type

I always suggest all my clients and I am making this suggestion to you, Graham and Anna that always consider taking professional advice, irrespective of your category, as the expert will be able to save you from the sudden pitfalls of the market, as these are hard to foresee for an outsider, layman investor who is not deeply involved in active trading of stock in the market. Such experts can also help you with tips regarding changes to be incorporated in your strategy, from time to time and depending on the prevailing market conditions. All funds do not perform steadily, but with expert advice they can be made to give a steady income and avoid risk factors of the stock market, according to Barkoczy et al, (2010).

This is the main reason why specialised field funds are making an entry into the stock market, although they also cannot guarantee the safety of the investments made by the investors nor can they guarantee a steady income, as per Barkoczy et al, (2010). Therefore, in my opinion the variable income funds are only suitable for investors who –

• Have the tendency of investing for long periods;
• Have the desire of leaving an inheritance for their dependents; and
• Are not emotionally attached to the investments.

This, in my opinion, is one of the safest ways to plan for a secure retired life by any type of investor. As the name suggests, all kinds of investments made into this type of investment fund, are guaranteed and for any investor such a guarantee can only come from the governments, details Barkoczy, (2015). Hence, I suggest that you invest in government securities and bonds or in insurance companies, as these are the safest options. I also find other equally secured investment options, such as Treasury Securities, Certificates of Deposit and Annuity Plans, as per Barkoczy, (2013). I have also found, in my long career that equally effective are Super Funds and Social Security Schemes, provided the investor starts contributing to them at a young age and keeps on consistently contributing to them during whole of his working life. Then only can such an investor reap their full benefits after his retirement, according to Barkoczy, (2011)

I have studied and understood your current situation. On the basis of that, our discussion about your future goals and objectives was held with you. After this discussion I find myself in a better position to conclude your risk profile, which I have based on the information and facts provided by you. In my long career as a Financial Advisor, I have been able to conclude that the risk profile of every investor is actually dependent on the person’s tolerance capacity towards the impending risks which, the individual, has to inadvertently face while taking decisions related to investments. These depend on the sector chosen and the period or genre of the chosen investments, assert Deutsch et al, (2011).

Investment of Super Fund balance with high-yield sources

I can conclude with confidence that your controlled and calculative attitude towards your finances defines you as a natural investor. It is also evident to me that you are prepared to take risks, albeit only the controllable ones, in relation to choosing your investment portfolio, as per CCH, (2015). I can also note that whatever previous experience you have attained while making investments in the market, be it in the properties market, is surely going to help you in your future course of action that you plan. On the basis of the discussions held with you, I can say with confidence that you already possess a fair and basic knowledge about investments, explain Smith & Koken, (2011).

Based on all the above observations, it is my conclusion that you have an above average risk tolerance. I can also say that this quality lets you not to indulge in any knee-jerk actions while confronting a profit or a loss. As an experienced Financial Planning Advisor, I have, as per Barkoczy et al, (2010), come across many investors who have a weak disposition towards risk. They make abrupt decisions and these eventually results in a mess of their investment portfolio. These assessments are the basis on which, as per Renton, (2012), we, as responsible Financial Planning Advisors, allocate an investor in either one of the following 5 categories -

Investors requiring high levels of income combined with stable growth of their investments.

Investors who remain content with their moderate levels of income, although they want stable growth rate of their investments.

Investors who keep an eye on the growth and stability of their investment capital and look for a steady income while choosing an investment of 2 to 5 years. Such investors do o not mind small losses and also do not aim for quick, short time returns.

This class of investors are also looking for growth of their investment capital. They are also willing to take moderate risks and usually make investments with span of above 5 years.

This type of investor is a totally long term investor. This type of investor has the target of making long-term capital growth and is willing to undertake large risks provided they have large growth potential. Such investors never aim for short term gains.

It is my firm opinion that you can become eligible for the ‘Moderate’ category. My decision is based on the fact that you aim at good earnings, your span is between 2-5 years and you are also willing to take controlled risks so that your investments have a steady growth, as stated by Nethercott, Devos & Richardson, (2010).

The globalization of trade and industry has changed the way investors now plan their Strategy for Asset Allocation. Investors approach towards the trends chosen and the strategies applied have changed with times, asserts Marsden, (2010). Approach and application of the investors, in the last few decades, has changed because of the quick changes which happen due to faster communication and global trading of the stocks. Nowadays, say Ezra, Collie & Smith, (2009), the Service Sector has become an important third element in the business world. With more dependence occurring on this third element of business, momentum of global trading is picking up, asserts Vice, (2010).

Certificates of Deposit (CD) for safe investment

I can say from my experience that investor’s strategy of asset allocation can no longer be confined to the battle of ‘Stock v. Bond’ nor are the results dependent on the ‘Rate of Withdrawal’ by investors. With the changes happening in the lifestyle of people, explains Ashhurst, (2009), these changing times are increasing the tendency of the investors and they are opting for early retirement. Nowadays, according to Lange & King, (2009), an investors working age has gone down from the previous traditional age of 60 years to a more moderate age of 50 years. Hence, the allocation criteria has also undergone a massive change, according to Barkoczy, (2013).

Our professional observations tell us that any element of risk is largely dependent on investor’s retirement age and the preparations undertaken by the retiree to meet any contingency. It is good on your part that you have taken the services of professionals for charting the course of your estate planning, as per Deutsch et al, (2011). You are well in time as you still have nine more years of service and in these years you can not only give a better shape to your planning but can also change your strategy, from time to time, after availing the advice of professionals for your pots-retirement lifestyle, as explained by Smith & Koken, (2011).

As I have discussed above, under the details given by Hanks, (2007), investors are preferring fluctuating investment modes. They also want that these should be readily accessible for making a quick withdrawal. The investors are also looking for offers which allow the investor more options of changing the income earning capability as per their changing demands, explains Deutsch et al, (2011). Looking at these complex strategic alliances, I advise my investors, especially persons like you who are making plans for their retirement, on the basis of the following three segments, into which I have divided the investors, as explained by Alexander & Fogarty, (2009).

Previously, such investors would keep 20% of their investments in stocks and 80% in bonds. With the changing times, their preferences have also changed. Now we advise this class of investors to adopt this strategy – Stocks: 20%; Bonds: 60% and a Variable Annuity of 20%. Over the years, the variable part is becoming a favourite. It gives the investors a wider latitude of selecting other options and they can also adjust the ratio between stocks and bonds according to the needs of fund allocation and the investors’ immediate or medium-to-long period needs, as detailed by Hallman & Rosenbloom, (2003).

Additional investment options: Preferred Shares, Common Stocks

Previously, a moderator investor would keep 40% of the investments in Stocks and 60% in Bonds. This has changed now as it is considered un-productive in the changed times. Investors have changed their priorities to either going for 40% in Stocks; 45% in Bonds and 15% in Variable Annuity OR 40% in Stocks; 25% in Bonds and 35% in Variable Annuity, depending on their risk stamina and lifestyle needs, as explained by Gitman, Joehnk & Billingsley, (2010).

Previously, this segment of aggressive investors preferred the option of 60% in Stocks and 40% in Bonds. But presently, the investors of this segment are choosing the option of 60% in Stocks; 30% in Bonds and 10% in Variable Annuity, according to Lange & King, (2009).

From all this information, you can understand that investors are no longer confining themselves to the traditional approaches. They are prepared for changes with the changes occurring in their lifestyles, the changes coming into the business environment and also because of the changes occurring in the economic values of nations.

In my opinion, you are not only at the right stage of your life, you are also in the right stage of mental preparedness with regard to your future planning requirements. This is the right time for you, as you still have nine years of active earning life for making any corrections needed to augment your post-retirement lifestyle and needs.

Cash flow projections have been appended in the attached Excel Spreadsheets and form a part of this Statement of Advice. The Spreadsheets not only cover the cash flow for your current income year but also include the remaining years till your retirement time. Also included are the Income and Expenditure details and Assets and Liabilities for the periods specified above.

For concluding the accounting results pertaining to current income year, the following basis are used for the analysis.

1. The rental income from the investment properties, currently taken as $53,400 and $15,600 per annum, have been escalated at a uniform rate of 6% per annum till the retirement year.
2. The amount of deposit in the online bank account has also been increased at an annual rate of 6%, to keep an adjustment of available surplus cash.
3. The outstanding mortgage loans of $897,000, taken for the investment properties as well as the Wollongong main residence, have been adjusted against the available incomes and surplus cash availability during the period of nine years by apportioning them to the available funds every year, so that all these properties becomes fully free in your hands.
4. The Super contributions, till the retirement year of yours and Anna’s, have been considered at current contribution rate of 9.5% and have been accumulated yearly.

1. All the available surplus cash has been transferred to the Self-Managed Super Fund investments, and these are evaluated to give an annual return of 6%.
2. The Wollongong Residence has been disposed and the receipts have been invested in the Self-Managed Super Fund.
3. The amounts received from yours and Anna’s super fund after your retirement have also been invested into the Self-Managed Super Fund.

Graham and Anna have plans of remaining in active service for another nine years. Their plan is to take retirement when Graham reaches 62 years of age (he is at present 53 years old) and Anna also wishes to retire along with Graham, although she will be only 60 years of age (she is currently 51 years old) at the time of her retirement. The vision the couple have of their post-retirement life is not a lavish one, rather they would like to maintain a simple lifestyle after their retirement, as per O’Shea (ed.), (2004). They are of the opinion that will be able to live decently on an annual budget of $65,000. For this budget, the couple has plans to be completely free from all their loan liabilities when they go into retirement, assert Nethercott, Devos & Richardson, (2010). Another expense which the couple intend to incur post-retirement is a holiday, every two years, which would cost $15,000 for every trip in today’s dollar terms. The couple is thinking of settling down either in Wollongong or on the South Coast of New South Wales after their retirement.

Advantages of short-term investments and access to cash

Presently, Anna’s mother, Marie Francis, aged 78 years, is living in the couple’s Granny Flat as a non-homeowner. But due to her health conditions, the aged care team attending to her has advised Graham and Anna to shift them to an Old-age Dormitory. The couple, in consultation with Marie, have decided to shift her to a local church managed old-age care facility. The facility has asked for a refundable deposit of $240,000. Marie has deposits and savings of $380,000 in her bank account and Graham and Anna believe that Marie can comfortably live on an annual income of $22,000 which she will be earning from the balance deposit amount of $140,000, after she pays-off the deposit of $240,000 to the church from her existing deposits of $380,000.

Considering that Graham and Anna’s investments get them a return at 6% per annum, the couple would require a fund corpus of $1,084,000. The combined corpus, which the couple is holding now is worth $1,891,000 and this will become $2,000,000 at the time of their retirement.

Assuming that the couple is worth $2 million when they retire, and this fund corpus earns them a return @6% per annum, the couple’s annual income will be $120,000. This will be enough for them to meet their own expenses, the education expenses of their children, the loan repayment of their Perth home and the expenses related to Anna’s mother Marie, as per Nethercott, Devos & Richardson, (2010).

As explained above, the earning of the couple in the period post-retirement will be enough to take care of their holiday expenses.

Looking at the magnitude of the fund corpus (about $2 million) which the couple will be having when they retire nine years from now, it is best for Graham and Anna to have a SMSF of their own. They can manage all the funds, whether they are investments in real estate, or in stocks or in bonds or in Certificates of Deposits. It will not only give them a regular and steady income source, the SMSF will also safeguard the future of their two children, who can also be included in the management of the SMSF after they complete their education, as explained by Deutsch et al, (2011).

Graham has shown his intention of setting up a Self-Managed Superannuation Fund (SMSF). He has been reading and making inquiries about such funds and he has the opinion that such a fund can be of help in buying more investment properties through such a fund.

1. You wish to remain in business of Property Investments, if the rent is collected by your SMSF, then your fund will be paying tax at a concessional rate on the rental income. The SMSF can avail benefit of certain tax breaks available to landlords, including tax deductions for the interest paid on the property loan.
2. The anti-avoidance provisions in the Bankruptcy Act permit all fund-held rental properties to be inaccessible to trustees in case of bankruptcy.
3. SMSFs allow members to invest in their own way and this is generally not available in company managed super funds.
4. The administration costs of SMSF generally remain fixed, no matter what the fund balance is.
5. SMSFs can have the general policy of minimizing the sale of real estate and shares until the fund begins paying a pension. Once an asset starts backing pension payments, the SMSF gets exemption from paying a Capital Gains Tax (CGT).
6. A SMSF can allow up to four family members to pool their super savings for buying assets, such as investment properties, which may be beyond the reach of one member. Gearing is generally available to SMSFs but not to large super funds.

Foreign currency market trading for high-risk investors

One of the biggest advantage for members aged 60 or above is that they can withdraw the benefits tax-free before death and hence can avoid the death benefits tax, assert Barkoczy et al, (2010).

The only disadvantage which I see in your case is that your SMSF will be established specifically for buying a single-type asset, such as real estate. This will limit the fate of the SMSF on the performance of these assets, as per Marsden, (2010).

Although Graham has been making investments in rental properties, both in residential sector as well as in commercial/industrial sector. He is currently looking at investing in rental properties in Perth, as the couple is soon going to be located in that area. Graham’s knowledge about rental earning properties is based on his self-studies on the subject and also by attending a few investment seminars on the subject.

As has been discussed above in SMSF section, you can safely make investments in properties through the SMSF and reap the benefits, as per Smith & Koken, (2011).

Graham has been investing in rental properties, both in the residential as well as industrial sector, since 2011. When he purchased the units in Gold Coast, he was given to understand that the value of the units would be doubled in about 10-15 years. But the fact is that, even after about seven years, the value of the Gold Coast properties is well below their purchase price. The only consolation which Graham has in his current situation is the advantage of Negative Gearing. Although Graham is not so much aware about the technicalities of Negative Gearing, he is seeking advice on this issue for his future investments in rental properties, so that he can have a safe and secure earning in their post-retirement period.

I do not find any reason for Graham to worry about Gearing. As has been advised by me, setting up of a SMSF will automatically take care of the Gearing problem as a SMSF gets the advantage of this benefit for all income earning properties held by it, as detailed by Alexander & Fogarty, (2009).

When the couple fully relocate to Perth in about three month’s period, both Graham and Anna have not been able to decide whether to keep living in a rented accommodation during their stay in Perth or they should buy their own house. Since Graham and Anna have the intention of being employed for another 9 years (Graham is presently 53 years of age, Anna being 51 years old and both have plans of retirement when Graham reaches 62 years of age and Anna is 60 years of age) and since they have already decided of letting-out their Wollongong house, the couple is seriously thinking of buying their own house in Perth. But this is also a situation on which the couple definitely want a good advice for a better and secure future.

In this situation also, my advice would be to buy your own house, but under the SMSF. This will allow the SMSF to avail discount on the interest paid towards the loan.

So far, the couple’s Wollongong house was a self-occupied residential dwelling and Graham was assured that he will not be liable for any Capital Gains Tax whenever he sells it. But now that the situation has changed, Graham is seriously thinking of finding ways of avoiding or making it the least, in a situation if the couple sell-off the property anytime in future.

Apportioning of the usage can be availed. My suggestion would be that you let-out the house for that mush period in a year so that you collect that much amount which is required for its maintenance and for paying the rates and taxes. That way, whenever you sell it, CGT will be payable only for those periods when it was an income earning property, asserts Barkoczy, (2015).

List of References

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