Starting an SMSF in your 20s?

As with many things about investing, deciding when and whether to setup an SMSF should much depend on individual circumstances – that go well beyond age.

The tax office’s latest Self-managed super fund statistical report shows that 1.2 per cent of investors who established an SMSF in the March quarter of 2017 were aged under 25.

Interestingly, 11.5 per cent of members who established SMSFs in the latest March quarter were aged 25-34 while another 30.5 per cent were aged 35-44.

Indeed, the 35-44 is the peak age group, by far, for establishing a self-managed fund.

These statistics show that more than 43 per cent of investors who established SMSFs in the March quarter were under 44. This reflects how self-managed super sector is continually regenerating itself with new members.

A younger person who is thinking about setting-up an SMSF should first consider such factors as:

  • The size of existing super balances: Are my super savings large enough for an SMSF to be financially feasible or should I wait for a few more years until my super savings are higher? Unavoidable costs of running an SMSF can handicap the returns of low-balance members.

  • Knowledge: Do I have enough knowledge about sound investment practices and about the legal obligations of SMSF trustees to have my own fund? And am I willing to take specialist professional advice when needed? (Considerations here include trustee duties, investment risks, likely returns, liquidity, investment diversity, risks of inadequate diversity and investment selection.)

  • Time: Am I ready to set aside enough time necessary for running an SMSF? Many young people would prefer to be doing other things than dealing with a self-managed fund. It’s worth thinking about. That said, professional help is readily available with the investing and administration of SMSFs.

This is not to discourage young people from establishing their own funds; it’s to encourage them to consider it with their eyes wide open.

The fact that almost a third of SMSFs are established by members aged 35-44 seems to suggest that many investors are waiting until their balances build-up and their investment knowledge has grown before establishing a fund.

And, critically, it can take a few years to understand what you want to achieve from your superannuation.

It’s worth emphasising that things to think about before setting-up an SMSF go well beyond age.

For further information or assistance please contact us on 03 9038 9449.


Written by Robin Bowerman, Head of Market Strategy and Communications at Vanguard.


Reproduced with permission of Vanguard Investments Australia Ltd

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