Tuesday, December 16, 2008

Australian Gold Superannuation

Australia created a pension system called the "Superannuation Guarantee" or "Super" in 1992. Under this scheme employers must make contributions into a registered Superannuation Fund on behalf of their employees. Currently the law requires a contribution of 9% of the employees' salary. Individuals that are not employees may also participate in Super at their own discretion.

Typically employers use a financial services company to provide a super fund vehicle to their employees. These funds offer a range of fund choices usually related to investments in share markets, bonds and so on. The employee then chooses one or more of these funds.

Many Australians understand little about Super or only become interested as they approach retirement. It is quite common for employees to lose track of their Super accounts when changing employers.

One option is to establish a Self Managed Super Fund (SMSF) whereby you become the manager of your own Super fund. This approach provides flexibly in what you can invest in. Below is a set of steps to accomplish this.

1. Establish a Self Managed Super Fund (SMSF). Most accountants and lawyers can establish a SMSF. As the Super industry has grown "discount" SMSF service companies have emerged. In general it should cost about $500 to setup a SMSF. A SMSF can have up to four members, for example, family members. The SMSF is a Trust under the law. The members are the Trustees. The Trust has a charter or set of investment objectives. Make sure words similar to the following are included in the investment objectives: “The Trust may invest in collectables and precious metals including gold and silver bars and coins.” A bank account will be opened for the Trust.

2. Consolidate any existing Super funds. Contact the Super fund companies and instruct them to close your accounts and send the proceeds to you SMSF bank account.

3. Make your purchases. You can buy and take delivery of physical precious metals. Of course these items must be stored securely. Banks and other companies offer secure storage. Institutions such as the Perth Mint have "certificate programs" whereby they store precious metals in your name. Keep complete records and receipts of all your transactions for the annual audit.

4. Annual audit. Each year your SMSF must be audited and forms lodged with the Australian Taxation Office (ATO). The company that established your SMSF can do this. Shop around when establishing the fund to get a low annual audit cost. Discount firms charge around $600.

The ATO has an informative website and anyone setting up a SMSF should read the relevant sections on that site (www.ato.gov.au).

Disclaimer: nothing here constitutes financial or legal advice.

Tuesday, November 25, 2008


Gold is one of the chemical elements. Gold's chemical symbol is Au and its atomic number is 79. Its chief characteristics are that it is inert and malleable. Inert means gold does not interact with other chemicals or compounds. Gold doesn't tarnish and even the strongest acids have no effect. Thus, gold lasts forever - and stays shiny the whole time!

Gold has many industrial uses, but its main historical uses have been for jewellery and money - both are a store of value. Gold has been used as a store of value for at least 5000 years. Gold is measured and prices are quoted in Troy Ounces and Grams. As an example of gold's ability to store value, 2000 years ago one ounce of gold would buy a fine man's outfit. Today one ounce of gold will still buy a good quality man's wool suit with enough left over to buy a few shirts, a tie, some underwear, socks, a pair of shoes and a belt!

Gold has been called a "barometer of fear." When people are anxious about the economy - they turn to gold and bid the price up. The two main things that make people anxious are deflation and inflation. Most think that deflation is "falling prices" and inflation is "rising prices." Actually, rising and falling prices are symptoms. The root causes are decreases (deflating) or increasing (inflating) of the money supply. Gold has the remarkable ability to store value in both deflationary and inflationary times.

The correct way to think about owning gold is as insurance. Gold is a store of value virtually independent of economic conditions. Unlike shares of a company or government bonds - gold will always retain value. Gold's most important use is insurance against the paper (fiat) currency of the country you live in. Almost every country has had at least one major "currency crisis" over the last one hundred years. Those that had some of their wealth in gold survived. Unfortunately many people saw their saving become worthless - sometimes in a matter of days.

So, think of gold as insurance. Do not think of gold as a way to "make money." Do not try and "time the market." It is better to buy gold in small amounts regularly, every month for example, over a period of time.The percentage of your total wealth devoted to gold is a personal decision and depends on your particular situation. A conservative goal would be ten percent. In times of uncertainty the percentage should be much higher.

Do not worry about selling gold when that time comes. Gold is recognized and valued everywhere in the world. It is easier to sell gold than to buy gold! Of course gold can be used in barter or trade as it has for thousands of years.

To summarize, gold is an insurance policy against economic uncertainty. Gold can protect against both deflation and inflation. Everyone should store some of their wealth in gold if at all possible.