Ask Paul: Should I close my self-managed super fund?

Dear Paul,

I have a property in a self-managed fund that has given us a boost from $180,000 in super to $550,000 in the space of four years.

However, with body corporate fees, life and TPD premiums, compliance and everything else, it's adding up (around $14,000 a year), not to mention the SMSF's $38,000 mortgage.

My fear is that it won't grow before retirement, and my accountant says to diversify and buy exchange traded funds (ETFs).

At the age of 52, I'm unsure whether to stick it out or pull rank and go back into a traditional fund.

We're not in a position to make additional personal contributions as we're currently paying off our home loan.

I am wondering if we cash out to a traditional fund, how much would our super roughly grow between now and retirement as opposed leaving it in my SMSF? - Sonya

Wow, Sonya, the property has really given your super a boost.

How you tackle your investment strategy from here is an interesting question. My overriding view is that a good investment tends to keep on being a good investment and a bad investment tends to keep on being a bad investment.

So, I am not sure why you think the property will not grow in value over the next decade or so to your retirement. Yes, it is costing you $14,000 a year, plus mortgage repayments on $38,000, but it has increased in value dramatically.

If there are some particular issues around the property, meaning it will not grow in value, fair enough, you should sell it. But I want you to question why this very good investment becomes a poor investment.

Once you review that, then the options you outline are fine. If you do decide to sell, ETFs inside your current super fund are a perfectly good idea.

Moving your funds to a traditional low-cost super fund is also fine. In terms of returns, a decent, low-cost super fund has returned around 8%-10% a year for decades from a balanced or growth option. This will also be a diversified option.

But first up you need to decide if you are keeping the property. If you decide to sell it, then I doubt that well-chosen, broadly based ETFs or a low-cost super fund will perform 
very differently.

It is more about whether you wish to keep your SMSF going, with its associated costs, or whether you prefer a good quality, large, low-cost, publicly available super fund and reduce the costs and time you need to put into your SMSF.

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