The self-managed super fund I was told to start is losing money. What do I do?

I was convinced to open an SMSF (self-managed super fund) in 2019. The promise was that my money would earn much higher returns than had been the case in my previous fund.

My balance now is only slightly higher than when I began, a touch under $300,000, despite five years of employer contributions. Some of the investments look like they might have made some money, but it has been eaten up by all the costs. It’s hard to make sense of. There is forex (foreign exchange), CFD (contracts for difference) and various other bits and pieces that make no sense to me.

I’m three years out from retirement and the whole thing is making me very stressed. What should I be doing?

SMSFs usually don’t make sense unless a specific case requires them, or your balance is over $1 million.Credit: Simon Letch

How anyone with any moral compass could have recommended you shift to an SMSF and plough your retirement savings into a scheme that, on the face of it, at least would seem very aggressive and risky, is beyond me. I’m sorry you have had this experience.

I’ve commented previously that I don’t believe SMSFs make sense unless there is a specific investment case that requires them (for example, commercial property), or your balance is above $1 million.

It has since been pointed out to me that there are cost-effective SMSF solutions that do make them viable for lower account balances, so I may have been a bit harsh here, but certainly few would consider an SMSF to be suitable below $500,000 in retirement savings.

While an SMSF is a feature of your current unsatisfactory predicament, an SMSF is just a structure in which you can hold your retirement savings. It has costs, but so do all super funds. At your level of super savings, it’s probably an expensive option, but it seems to me this isn’t your main problem. The main problem looks to be how the money is invested.

Markets have been strong recently, and given your employer contributions, you certainly should have experienced meaningful growth in the value of your retirement savings.

Arrange a meeting with a licensed financial planner and get their advice on where to next. I suspect that the answer is selling the current portfolio, winding up the SMSF and moving your retirement savings to a mainstream fund with low costs and appropriate diversification.

But this is based on the very limited information that you have provided. Professional advice that is customised to your circumstances is essential here to set you on the path to long-term financial security.

On my super statement, about a third of my balance is noted as being “tax-free”. I’m confused by this as I thought all super was tax-free once I retired. What is this referring to?

Once you are retired and in pension phase, it is true that there is no tax on super fund earnings and the income you draw out, subject to a maximum initial balance of $1.9 million currently. Within this phase then, your “tax-free” portion is meaningless.

Super funds track it, however, because if there remains money in your super fund when you pass away, the tax-free portion is immune from death benefits tax. Death benefits tax applies when unused superannuation savings are paid out on death to someone other than a spouse or financial dependant.

The source of your tax-free portion will be voluntary super contributions you have made where no tax deduction has been claimed. Note that earnings on these monies go into the “taxable” bucket.

Paul Benson is a certified financial planner at Guidance Financial Services. He hosts the What’s Possible? and Financial Autonomy podcasts. Questions to: [e-mail]

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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