Trustee spotlight: How Paul invests for retirement, whilst building an inheritance

In this trustee spotlight, Paul shares his portfolio approach, including how he builds wealth for two purposes, and learnings on how best to divide the running of his SMSF between himself and the experts.

Paul Rogers, who opened his self-managed super fund (SMSF) last year, thinks that when it comes to his fund’s investment strategy, it’s best left to the experts.

“I first became involved with super in 1989, when I became a trustee and administrator of my employer's fund. This highlighted the significant benefits of superannuation,” he explains.

Over the next 30 years, Paul focused mainly on contributing to his super fund with his employer and also building up his investments outside super. 

“I've always been a strong supporter of super because supports people by building a pool of wealth outside of their home and gives them the ability to take control of their finances in retirement,” he says.

Paul decided to start his fund because over time it’s become much easier to run an SMSF. He now also has more time to manage his investments, having transitioned out of full-time employment to a consulting career as he nears retirement.

“It's actually become much easier to create a cost-effective investment structure in recent years. And it’s only recently there’s been a broad well diversified range of investments in which SMSFs can invest in at a reasonable cost.”

Capital gains tax is another reason he started his fund. Says Paul: “When you move from accumulation to pension mode in a corporate or a big fund, capital gains tax is realised. Whereas that’s not the case with a self-managed super fund.”

Dual arrangements

Paul has two investment structures in place because he has two purposes for his wealth. 

“One purpose is inheritance for my children, and that sits in a separate legal structure. For super, we have money sitting there to meet our needs in retirement.”

He started building his investment structure in January. “It's going to take me a couple of years to put it fully in place. Our long-term aim is to have a pool of assets that replaces 60% to 70% of the salary I'm earning now.” 

The aim of the fund is to achieve a certain return plus CPI, which he has achieved in the fund’s first year.

Paul takes a top-down approach. “The first thing I do is set my asset allocation, and then I think about my investment approach: where do I want to match the market and where do I want to outperform the market? I believe in active management in asset allocation. If you can work out how to change your asset allocation around your benchmark to take advantage of market conditions, you will do very well, but that is very hard to do.”

He also takes a core and satellite approach. The core mainly comprises index funds and ETFs, with the aim to replicate market returns. The satellite part of the portfolio takes on more risk and includes small cap and mFund investments, as well as a credit fund and a US global hedge fund. Paul noted “active management plays a very important role in the satellite part, I want diversification of assets and investment management styles and approaches”. 

But he leaves implementation to the experts. “I don't invest much of the money myself. There are just too many stocks out there. I can use my time better by working and leaving this to the specialists.”

Paul uses CHESS as his underlying administration platform. “I use it because all the assets are valued on a daily basis through my broker, so I can keep track of it. Then, I've built a couple of spreadsheets on top to track my other investments to give a holistic view.”

“I've got the individual legal structures, then the family structures sitting across the top. I'd love a platform that did that for me at a reasonable cost, but there isn't one at the moment.”

His advice to other SMSF trustees is to always understand why you've included an investment in the fund. 

“Everyday, the question should be, ‘Should I still have this in here?’ Buying assets is easy, but selling them is really hard because you become attached to the asset.”

“Be really mindful about the purpose of your fund and how you are achieving it and whether it’s structured to achieve your objectives. Super is not a wealth transfer vehicle, and it shouldn't be viewed as that. It’s for retirements savings and it’s important to recognise that’s the reason why you run your SMSF.”