5 ways to diversify your SMSF you might never have considered
The rumours are true, you really can invest in crypto, wine and art through your SMSF.
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One of the key benefits of starting your own self managed super fund (SMSF) is having complete control over how your super is invested.
With a traditional super fund, even if you select a DIY option that allows you to invest in equities as a single asset class, you still can't select the individual shares or ETFs yourself. With an SMSF, on the other hand, you can pick and choose the exact shares you want to invest in (and also when to sell or buy more). It's no surprise that shares are the most commonly held asset by SMSFs.
A lot of people are also drawn to SMSFs as it enables them to invest directly in residential and commercial property. Instead of getting exposure to property via a managed fund or index investment with a standard super fund, an SMSF allows you to buy a physical property that you can own and rent out.
But there are plenty of other ways to invest with an SMSF outside of property and shares. Here are 5 ways to diversify your SMSF investments that you likely haven't considered yet.
1. Cryptocurrency
There's been a lot of buzz about cryptocurrency in recent years, especially amongst retail investors. But despite the increasing interest in cryptocurrencies such as Bitcoin and Ethereum, big industry and retail super funds don't yet offer members an easy way to gain cryptocurrency exposure. However, this is something you can do with an SMSF.
Allocating a portion of your SMSF balance into cryptocurrency can help you diversify your portfolio, and provide a way to hedge against traditional markets such as the stock market. The ATO classifies Bitcoin and other cryptocurrencies as capital gains tax (CGT) assets instead of money. But being part of the superannuation environment, there are tax benefits to investing in cryptocurrency via an SMSF. For example, income from your SMSF investments is only taxed at the concessional rate of 15% and long-term gains are taxed at 10%.
The process is similar to setting up a share trading account for your SMSF, however you need to use a platform that enables SMSF investors as well as personal investors. For example, Swyftx is a cryptocurrency exchange which enables eligible SMSF investors to trade Bitcoin and Ethereum, among other coins, with a dedicated SMSF trading account.
This is facilitated via its exclusive partnership with New Brighton Capital, a specialist crypto SMSF provider which provides accurate data feeds between the exchange and the ATO as well as assistance with the ongoing (and often complex) accounting admin that comes with managing an SMSF.
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Read more…2. Collectibles and personal use assets
As of June 2021, SMSF members had $463 million invested in collectibles and personal use assets. Some examples are fine jewellery, vintage cars, coins, postage stamps, rare banknotes, limited-edition album or record covers, LEGO sets and boats.
However, there are strict rules around these investments. The main rule is that these items can't be currently used by members, as that goes against the sole purpose test of super investments being for the benefit of members' retirement. If you're able to use it now, you're benefiting from the item already.
So if you've invested in a car or boat, sorry, you can't use it or even have it on display in your home. You also need to keep a record of where you've stored the asset, and why you've stored it there.
3. Artwork and antiques
Artwork and antiques fall into the same category of collectibles and personal use assets. This includes paintings, drawings, sculptures, engravings and even photographs.
Antiques can include almost anything, from vintage furniture to limited-edition crockery and tea sets. If you think the item is likely going to rise in value, and therefore make a fine investment, you can invest in it through your SMSF.
However the same catch applies, you can't use (or gain any form of benefit) from these items while they're investments. This means you can invest in the most beautiful, rare and expensive piece of art in the country, but you can't have it out on display in your home or office. However, it could be hung in an unrelated premises, gallery or museum.
4. Physical gold and other precious metals
While you might be able to get some exposure to the price movements of gold, silver and other precious metals via an index investment in a super fund, you can go one step further with an SMSF. You can invest in physical gold bullion bars from the mint and own the actual commodity.
However, you'll also need to consider the cost of storing your physical gold in your investment strategy.
5. Wine and spirits (yes, wine!)
This one sounds like something that your wine-obsessed friend made up, but it's true. You really can invest in wine and spirits through your SMSF.
This could include investing in a case of limited-edition Grange, or a selection of premium whisky. But before you head online and start adding-to-cart, there are, of course, some rules.
Remember, you can't use or benefit from your SMSF investments, which includes drinking your wine. You also need to justify your SMSF investment decisions in a documented SMSF investment strategy, which means you genuinely must believe the investment will increase in value. You can't simply purchase a few cases of your favourite wine.
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