Diversify your SMSF with Gold Bullion

In Australia we are fortunate to have a superannuation system in place that exists to ensure that we all have the right to control our own destiny and create for ourselves a good quality of life in retirement. 

The question is, how can you make the most of this opportunity and establish a foundation of wealth that will sustain you in retirement, and even provide future generations of your family with a legacy they can depend on? In this article we will explore the different considerations involved with a self-managed super fund (SMSF) and how you can diversify your SMSF with gold bullion.

The Significance of SMSFs

Compulsory superannuation contributions were first introduced by the Keating government in 1992 as a solution to alleviate the stresses of an ageing population on the Australian economy and expand the opportunity of wealth generation for all. As Mr. Keating explained in an article online, “Back in the 1980s, only wealthy people were in the stock market, but I felt mums and dads should be able to share in the bounty of the wealth of the nation. Owning a home was fine but they needed more.”

So came the introduction of managed funds that were apart of a system designed to be simple, affordable and understandable. However, since the ascension of the Superannuation Legislation Amendment Act in 1999 that introduced SMSFs and Small APRA Funds, more and more people have turned to SMSFs to beat the disappointment of lower than expected returns from managed funds – where risks are taken by managers but the losses are worn by the beneficiaries of the fund.

The Benefits and Obligations of an SMSF

SMSFs affords members ultimate responsibility for their super funds and the ability to closely control how they invest their retirement savings, offering more investment choices, as well as considerable tax concessions and other benefits.

SMSFs are private funds that are regulated by the Australian Tax Office and are allowed up to four members who are the trustees of the fund and may benefit from the ability to pool their assets, purchase property using debt, and benefit from a capped tax concession rate of 15% on income derived from investments outlined in the investment strategy. On top of this, members are permitted to make in specie contributions. This means that, as a member of your SMSF, you may transfer the ownership of shares or property belonging to a business to your fund without selling the asset itself.

As the trustee of an SMSF you are responsible for: setting out and following your investment strategy that meets your retirement needs and accounts for the risk your portfolio is able to handle, researching investment options, managing the fund, budgeting for ongoing expenses, keeping comprehensive records, organising insurances such as income protection and total and permanent disability cover for super fund members, and arranging a yearly audit by an approved SMSF auditor.

By including a broad range of investment options in your investment strategy, this allows you flexibility in what you choose to invest in and the ability to better balance, adapt and diversify your investment portfolio. As the trustee of your SMSF you have the choice to invest in shares, property, cash and term deposits, bonds, property, cryptocurrencies, collectables and physical assets such as gold bullion.

Gold Bullion and your SMSF

As stated in an article published last year by the ABC, making money out of money isn’t as easy as it used to be. With an all time low Reserve Bank of Australia (RBA) cash rate of 0.75%, term deposits aren’t making the returns that investors usually rely upon. This is why more and more SMSF members are looking to gold as a portfolio diversifier and an insurance against economic uncertainty and a method for hedging losses.

While you may be 100% committed to your SMSF and building a comfortable retirement for yourself, taking control also means taking appropriate measures in your investment strategy to diversify and protect your portfolio from the risk of possible loss of investments and market volatility. 

Gold is a physical commodity with inherent value that is held in high regard as a long-term investment option that rises in price as stocks markets drop. Taking into account that we watched the price of gold rise to a near all time high in 2019, have you considered including physical gold in your self managed super fund investment strategy?

When considering physical gold as a part of your investment portfolio, it is important to note that gold bullion is preferable over gold coins because the price of gold bullion is based on the spot price of gold, while gold coins are classed as collectables and are subject to stricter rules because the value of the coin is more complicated to determine.

While it is completely legal for your SMSF to invest in gold bullion, there are a few important considerations to take into account and rules you must comply with. Firstly, and most importantly, gold bullion must be an allowable investment according to your investment strategy. 

When purchasing gold bullion the invoice must be made out in the name of your SMSF. Once purchased, members of your fund are responsible for keeping adequate records that prove the existence of the gold bullion, as well as show the decision of where the investment is stored and how it is insured. 

For example, it is a requirement that the gold is stored in a secure storage facility and insured for its market value. As stated in an article by the Australian Financial Review, “Whether it’s bullion or it is classified as a collectable, storage and insurance will be top priorities.”

Furthermore, you are required to provide all relevant documents concerning the above to your independent auditor to assist with annual audits of your fund. If you don’t comply with the investment restrictions, the ATO may impose significant penalties such as higher tax rates, and disqualify you as a trustee or even prosecute members.

At Private Vaults Australia we specialise in the purchase and sale of gold and silver bullion, offering expert advice on SMSFs purchasing and storing precious metals, as well as complimentary insurance of $20,000 with each safe deposit box lease.

For more info on how to diversify your SMSF with gold bullion, contact PVA or read the PVA blog for more interesting news, tips and ideas to guide you.