Members: Husband and wife trustees.
Fund commenced: In 2000.
Pension or accumulation: In part-pension mode since January 2013 and full pension mode since 30 June 2014.
Fund size: Varies with markets but around the $1.5 million mark.
Why did you start a SMSF?
I wanted to take control of my wealth creation journey and have the flexibility to move quickly. At least then I only have myself to blame. I am a strong believer that no one is more interested in my wealth wellbeing than myself.
Are you pleased with its performance?
I am more than meeting the investment strategy of the fund over the 14 years it has been operating.
I tend to do better than the big retail or industry funds in the bad years and line ball, or perhaps lag a little, in the good years. In 2008 when the big guys took a bath I was positive at 0.35%. Over the last three financial years I have had 10%, 14.25% and 11.87% net of tax obligations. This financial year (14/15) is shaping up at 10-12%.
Is it more or less difficult than you thought it would be?
Like anything, if you are passionate about it, it’s easy. I really enjoy going to seminars, reading avidly and staying up to date on research. My biggest plus has been my long-term membership of the Australian Investors Association. Most of us (the members) are highly independent and very few would fit the different asset allocation/investment strategy models that are espoused through the press and elsewhere.
What investments do you have outside of superannuation?
On call cash, term deposits and family home. We are debt free inside and outside of super.
Do you use an advisor or any kind of service provider?
I gave up on advisors 10 years ago when I figured out they were more interested in their pocket than mine. I don’t think much has changed in the interim.
I do use a specialist SMSF accountant to answer technical questions and to put together my tax return, audit certificate etc and to ensure I comply with all the rules and changing legislation in the space. I would spend about two hours a week all up on the fund, which I enjoy.
How do you invest?
My investment objective is 3.5% above the inflation rate.
My asset allocation parameters are to invest in a diversified portfolio including:
- Defensive assets (cash and term deposits)
- Moderately defensive assets (fixed income characteristics including government bonds, investment grade corporate bonds, mortgage trusts etc)
- Risk assets (direct shares, ETFs, managed funds, unlisted property, commodities and currencies)
What are your current asset allocations?
Risk assets -34%
I am mainly invested in the listed investment companies of Argo Investments (ARG), Australian Foundation Investment Company (AFI), Djerriwarrh Investments (DJW), Australian Leaders Fund (ALF) listed investment companies. I have chosen this approach as I am a lousy stock picker. I also like WAM Capital (WAM) but I have been waiting for it to trade at discount to NTA.
Management costs are cheap in listed investment companies but they are also actively managed. Argo and AFI are long-term core holdings and have averaged 9% per annum plus franking. I am not a trader but do look carefully at stock(s) that are new IPOs. I am currently assessing up to 50,000 to Medibank Private but scale backs look imminent. Estia Health and Pacific Smiles are two I will be looking at as well as they are being floated towards the end of the year. All will need to satisfy P/E requirements, growth industry targets and have sustainable dividends with good cash flow.
I have just started dipping into international equities via Platinum and the new Global Value Fund. I have invested about $80,000 all up. I am looking to put more into international equities as funds permit.
Unlisted property-20%
I favour managed funds or single property syndicates and use Sentinel Property Group, Charter Hall and Cromwell.
Investments must have a loan to value ratio of 50% or less, a 9.5% plus return, and long weighted average lease expiry (WALE) with blue chip tenants. My holdings are all long-term holds with exit strategies built in. Syndicates are usually held for seven years and 10% plus returns are the norm plus some capital growth.
Defensive assets-12%
The fund has 12% cash in an operating account. As I am looking at Medibank and other IPOs, mentioned above, this will drop to about 8%.
Moderately defensive assets-34%
I have been a long time trader in ‘Over The Counter’ bonds through FIIG Securities. I have no fixed-income managed funds. I try and buy investment grade bonds with a mix of floating rate, inflation linked or fixed depending on where I see interest rates going. The bond holdings are the core of my cash flow requirements for pension payments.
The important thing is to do your research and ensure the company has a strong credit rating. Examples of holdings are Envestra, Sydney Airport, IAG and Civic Nexus.
What other investments are you looking at?
As you can see, I mostly stick to listed investment companies and hold long term. I do balance that with individual buys that are representative of growth more then dividends and not usually covered by the large listed investment companies. I recently bought into the new David Kirk enterprise ‘Bailador Technology’ float that addresses the digital sector.
I am looking at Seven Group Holdings (SVW) as it has gone through a period of price weakness and pays a good dividend on current price – 8% plus fully franked. I like the underlying diversification of the business and the fact that Kerry Stokes is at the helm. In my view he is a standout in Australia. I also have an interest in the SVW head office building at Technology Park in Sydney through Centuria Investments. So unlisted commercial real estate is also a focus from a cash flow point of view. It’s a sector I know well from my small business days.
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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