When Does It Make Sense To Set Up An SMSF?

The most common question I get when someone’s exploring self-managed super is, when does it make sense to set one up?

The answer to that is never simple. It depends on what your current super is doing and what the performance is like.

The most relevant question is, what do you want to invest in? What sort of assets do you want to use your super for? If you’re going to close an industry super fund, set up an SMSF to invest in a term deposit, you’d be nuts because of the fees. You’d need a couple of million dollars before the fees would outweigh the benefits of just leaving it in a cash industry super fund.

I’ve seen some people with a balance of around $100,000 set up a self managed fund to hedge other investments they’ve got outside of super. People sometimes hedge with gold or silver bars, assets that are outside of super, like shares or property, where they want a valuable metal to offset or hedge some weird things like what happened with the property or share market.

I’ve also seen people with smaller balances set up SMSFs to invest through businesses, angel invest or lend money. These are some examples where it doesn’t always make sense or there’s a dollar figure that makes sense for everyone.

But there is a ballpark. If you Google “how much do I need to set up an SMSF,” most places would say between $200,000 and $250,000 in super to break-even from a costs perspective. So the cost of leaving it in an industry super fund versus setting up a self-managed fund.

Keep in mind, that $200,000 to $250,000 is the combined balance of the number of members you’ve got in your fund. So if it’s just you, then that’s your balance, but if it’s you and your partner, then you need to look at what’s your combined balance, and do you meet that rough guide to sort of break even.