My SMSF

My SMSF – a blessing in disguise

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Name: Gary Stone
Age: 53
Other members of the SMSF: Heather Stone

How long have you had your SMSF?

It was established in May 1997, so 17 years now.

Why did you start it up?

I had started a small business in my mid 30’s in 1995 and was transitioning from a successful career in the corporate world to the world of small business.

That small business, now Share Wealth Systems, operated in the financial services arena, which lead me to research all the entities through which to invest. An SMSF was one of those entities and given the vastly different capital gains tax advantages of using an SMSF vehicle compared to other entities, including in one’s own name, I took the step of establishing an SMSF.

I thought that it was a no-brainer, despite most accountants and financial advisors at the time advising against it, using cost as the reason. It didn’t take me long to work out that it was conflicted advice as the probability of that industry retaining trailing fees from managed funds would decrease enormously if SMSFs became a highly-accepted investment vehicle across society and private investors started DIY investing en masse.

To me, I had a long term plan that would take my SMSF to levels that it would be far more cost justifiable than it may have been at the time, and as such the sooner that I started that journey the better, even if it relatively cost me a bit more in establishment fees at the time and in ongoing accounting fees thereafter.

The idea of having my super investment managed by my then employer’s super management company for relatively huge fees, and without any choice in what they invested in, didn’t appeal to me. This was my future retirement capital and, at some stage, I would have to learn to manage it myself so I owed it to myself and my family to learn how to do that, and to take responsibility for that.

That realisation made, I started an SMSF immediately.

How big is it?

It started with $40,608 in June 1997.

It is now near the high hundreds of thousands. Growth has slowed in recent years after transferring some excellent stock market investing gains into commercial property some six years ago and with the Australian stock market basically moving sideways for the last four years since April 2010 to February 2014.

Is it more or less difficult to manage than you thought it would be?

It is not that much more difficult than keeping on top of how a super investment may be faring with an industry super fund or an employee scheme. I know this because I have had people ask me to decipher their super investments in these alternative super options and try to calculate their actual returns from the fees and the tax that they are paying.

Once you have established the regular processes with people that have the necessary skills, such as an accountant, it takes a relatively small amount of time and has a relatively low degree of difficulty.

Do you enjoy managing it?

I do, thoroughly.

It has motivated and inspired me to go through the learning curve of investing and gaining the necessary analytical and mental skills required to become a consistently successful active investor.

I have spoken directly to many hundreds of individuals, and indirectly to many more, around the time that they start the journey of managing their own investments. You see, at some stage, everybody gets to that point, only starting when they near or reach retirement makes it so much harder. To a person they all say: “I wish I had started sooner!”

How has it performed?

Over the last one, three, and five years my SMSF has slightly underperformed the equities market but over the last seven years, which includes the 2008 bear market, it has handsomely outperformed the equities market.

What is your asset allocation?

Via my SMSF, I have two main asset classes, rent-paying commercial property and equities. I use an active equities strategy across two stock exchanges, the ASX and the NASDAQ, which at times will be 100% in cash, so you might say I use three asset classes depending on what is happening in the equities markets at any given time.

I am also working on a strategy that uses ETFs, and inverse ETFs, to better use my cash during down equities market periods.

What are your favourite investments/stocks and why?

Of recent times, since January 2013, I have enjoyed actively investing on the NASDAQ. I managed a 54% return over 15 months to April this year but am currently in cash, according to the risk management rules of my strategy.

Why the NASDAQ? Over recent years, the USA equities markets have become so much more accessible and for very low cost. The benchmark rate from Fidelity, Schwab or Scottrade, huge brokerage houses, is around the US$7.95 – US$8.95 flat rate for each transaction, but you can pay far less that that.

However, the main reasons are the diversity and market breadth of stocks, much higher liquidity and better performance than the Australian equities market over many years.

The ASX relies on the materials and energy sectors to do well for the whole market to take on a positive sentiment, with around 55% of ASX stocks in these two sectors. The NASDAQ is spread far more evenly across, technology, health, financial, consumer discretionary, consumer stapled and materials.

What investments do you have outside of superannuation?

Residential property via an investment company, and a business that has been operating for 19 years in the financial service arena that devises DIY private investor strategies, which, incidentally, I use myself in my SMSF and in my business.

Do you use an advisor or any kind of service provider?

No to an advisor but I use an accountant. The right accountant is a blessing when it comes to SMSF and other investing entities. And obviously online execution platforms into the equities market, such as Saxo Capital Markets.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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