SMSF AND COVID-19:
How It Will Affect Your Property
and Share Portfolio
While people with managed super funds will be avoiding looking at their balances after the dramatic falls on the stock market, if you have a SMSF, you can breathe a little easier.
Self-managed superannuation funds are in a good position to ride out this Corona craziness, thanks to their greater exposure to cash and lower-volatility assets, including property.
While everyone’s SMSF is a little different, there are a couple of key investment options for most self-managed funds, shares and property – so let’s examine each of them. The first is my personal favorite and area of specialty – property. Arguably, property is also the most stable investment consideration.
Unless you’re looking to retire very soon or you’re already retired, you should not be concerned. Property in your SMSF is a long-term investment, held for at least a decade, often longer.
During these uncertain times, it’s important to remember there will be ups and downs, but house prices were quite strong before Coronavirus hit, so they will bounce back. And so far, we’re not expecting Australian property prices to dip too much.
The one thing that might be concerning you though is your rental income. One of the reasons you probably included property in your portfolio is its cash flow and ultimately, because it will become a solid source of passive income.
The Government has put out a range of support packages to make sure people that have lost their jobs/business revenue have enough income to pay their bills, but there are a few groups that may fall through the cracks.
If you’re concerned your tenants may not be able to pay their rent, you do have options. Of course, you’ll be aware that The Australian Banking Association has mandated all Australian banks offer the option to defer your payments for 6 months, but in most cases (The CBA being an exception) that doesn’t mean your interest will be frozen – just spread over the life on the loan.
So, what do you do if your renters can’t pay their full rent? Like our PM said, you may just have to work it with your tenants – perhaps a backpay option could help cover the interest and other bills attracted over 6 months, just make sure you get EVERYTHING in writing. It may also be an idea to talk to a financial advisor. I know, I know. These aren’t the greatest of options. But these times are temporary and your property investment is long term. Don’t forget the end game here!
Also, if you have landlord insurance, take a look at your policy and see if you can be covered for lost rental income due to the Covid crisis. May be a great way to look after your tenants.
While regular super funds hold on average around 60% shares and 10% cash, generally speaking self-managed super funds tend to have around 45% shares and 25% cash.
But even if you do have a large of shares in your SMSF, don’t panic.
While the ASX has been on a rollercoaster ride since the virus hit us, causing share values to drop by millions, experts are reminding us all to not panic sell, even though our super funds may have taken a hit.
According to Canstar, if you have $100,000 in your super, your balance would have fallen by $5,873 since the beginning of Feb.
But as savvy investors know, the only time you lose money is when you sell something (and not buy again) in a falling market – and that’s just madness.
There’s a common theme for most of my COVID related posts and that’s two key things: stay calm and stay informed. We don’t know how long this volatility will last, but we do have the time now to not make rash decisions. Let’s take the time to talk to financial advisors. Let’s take the time to get all the information from our banks and insurance agencies. Let’s take a deep breath. And let’s use our time wisely.