Can your SMSF invest in overseas shares? In short, the answer is: yes, they can. Any super fund can invest in overseas listed shares, whether you manage it yourself or have someone else manage it for you.
A self-managed super fund (SMSF), in many ways, is similar to retail super funds. They’re a way for Australians to save for retirement. The biggest difference between the two is that self-managed super funds are just that: self-managed.
This means that the members of the super fund are also the trustees. Many people include family members, such as their spouse, or a company as trustees in the super fund.
SMSF trustees make decisions on how to invest the money themselves and have to make sure to comply with tax laws and regulations regarding super funds.
It’s important to remember that any investments made through an SMSF must be for the singular purpose of providing fund members with retirement benefits.
It is possible to invest in overseas shares through an SMSF, but terms and conditions apply. There are both benefits and drawbacks to investing in overseas shares, just like any investment you make.
We’ll take a look at the factors to consider in the sections ahead.
Why Invest in Overseas Shares?
There are several reasons you might want to use part of your SMSF to invest in overseas shares.
The first is obvious: it gives you access to far more investment opportunities than are available here in Australia.
More Investment Opportunities
The Australian market is one of the largest in the world (currently ranked 15th), but it is 1/12th the size of the New York Stock Exchange. You can invest in property along with your shares, but your options remain limited when you’re looking to keep your money in the country.
For example, the New York Stock Exchange has a market cap of $26.1 trillion USD, while Australia’s is at $1.3 trillion. Overseas markets like the US, China, Japan, and the UK are all larger than Australia’s ASX, and represent more investment opportunities.
Invest in Different Industries
Most of the market is made up of mining and financial companies, which doesn’t present too many diversification opportunities for the shares portion of your SMSF.
Many industries don’t have strong representations in Australia, which is different in other countries. Overseas companies that perform well open the door to new investments and a higher earning potential for your retirement savings.
Diversification is the name of the game when it comes to long-term investments. An Australian market crash will be a hit to your savings, but spreading your assets to property and international shares can limit this risk.
Those who have some funds invested in American, Chinese, or European companies may weather the storm of a low-performing quarter here at home. Overseas markets can outperform the Australian market, which means you could be making more money when the Australian market is on the downturn.
Overseas investments open the door to further diversification, which is usually positive for investors.
Risks Involved With Overseas Investment
While international investments can often be positive, there are some risks associated with bringing your money overseas. Every investment has its risks, and it’s important to know about them before committing your funds.
Keeping up with regulation changes in Australia is often as easy as opening a financial news publication. While the internet makes it easier to keep up with international markets than it has been in the past, it can still be tough to stay on top of all of the moving parts, particularly with time zone differences.
If you invest in the shares of companies located in multiple countries, you’ll have your hands full monitoring changes in the markets. At this point, international SMSF investments may seem more like a full-time job than a passive way to save for retirement.
There are many taxation considerations to make when investing in overseas shares. Profits from these shares are considered foreign-sourced capital gains, and must be included on your tax return.
Australia has systems in place so you can avoid paying double tax on your overseas income, but only if you report it correctly.
Furthermore, the financial year is not the same in every country. You might file your taxes for the previous year abroad after you’ve already filed your Australian taxes.
Those who have overseas investments will likely have to consult with a professional accountant when tax season comes.
Part of investing overseas is keeping track of currency values. Your investment will remain in the currency of the country you invest it, meaning exchange rates add another potential risk for investors.
Say, for example, you invest in an American company. The stock might rise, but the Australian dollar rises in value compared to the American dollar at the same time. A situation like this might result in a net loss for your investment.
Investing in Overseas Listed Shares
Overseas investments can be a great way to diversify your SMSF and limit your reliance on the Australian market.
There are a few risks, and you should educate yourself as much as possible before exploring overseas shares. Always do your research on the company and country in which you’re investing to help limit these risks where you can.