Chase Strategy not Bitcoin Returns

I have been following Bitcoin for some years now and in 2013 included the ability of a Trustee of a SMSF to invest in Bitcoin in the SMSF deed that I wrote.  I specifically included it as one of the currency investments, along with all digital currencies that a SMSF Trustee had the powers to invest in.  Without such a rule, or legal clause it is doubtful that a SMSF Trustee has the power to invest in cryptocurrencies.

Anyway, I am getting off track here.  Bitcoin fascinated me as it was the world’s first international currency not regulated by any sovereign government.  It sounded promising in this day and age of global communication, global business and global travelling.  But the catch is that governments of sovereign countries have their own mandates to build roads, hospitals, schools, universities, pay welfare and most of all collect taxes.  All of that has to be done in a national currency.  After all see how far you go paying your welfare recipients in Bitcoin or pay for milk, bread and eggs for it at Woolworths.

Now that doesn’t mean that a government such as Australia cannot issue its own digital currency such as the KangarooCoin to replace our dollar but that is sometime off. Venezuala is trying the same with an oil backed digital currency and that seems to make a lot of sense.

However the merits of a digital currency based on the eminently sensible blockchain technology and even better, backed by oil, gold, natural gas or something finite seems promising.  But Bitcoin.  Well, you like me have heard all the stories from the cab drivers, the fitness instructors and not just here but in the US, UK, India and Hong Kong.   To me, what is eminently sensible for a sovereign government or the IMF to issue in terms of digital currency has a highly speculative and internationally unregulated side in Bitcoin.  Sure you can put your SMSF money in Bitcoin but would you?

And I have learnt over my lifetime, sometimes the hard way that I can’t pick investment markets and certainly not investments that will go up and make me rich quick, if there is any.  The beauty about SMSF investing is that it is very long, long term which means that good old-fashioned investments over a long time, unless disrupted by technology and strong investments.  At the moment the big issue in Australia is energy security so anything, long term that helps industry and the voting public have secure, affordable, long term energy seems a good investment to me.  But again all investment has its ups and downs.

Not strategy.

To me strategy – tax strategy and SMSF strategy are gold.

Look at how many SMSF million dollar funds there are.  Is that all from good investment?  In part yes but if we all know it is from the significant tax concessions given to SMSFs.  And the bigger the fund the more gross dollar value tax concessions available.  With the right strategy.

Let me give you a simple ranking study.  Which is the best tax long term tax strategy for a sixty five year old retiree with $500,000 in cash?

  1. Investing it in a NAB term deposit paying 2.95% over a one year period
  2. Investing it in a NAB term deposit paying 2.95% over a one year period in an accumulation account for the retiree member
  3. Investing it in a NAB term deposit paying 2.95% over a one year period in a pension accojunt for the retiree member
  4. Investing it in NAB fully franked shares with a forecast yield of 6%
  5. Investing it in NAB fully franked shares in an accumulation account for the retiree member
  6. Investing it in NAB fully franked shares in a pension account for the retiree member

For tax purposes No 6 is the best value as the retiree already receives tax free pension income and the underlying dividend receipt of potentially, $500,000 x 6% = $30,000 will be tax free to the Trustee of the Fund.  Plus the receipt of the $12,857 is fully refundable to the Trustee of the Fund and hence the retiree members account.

Long term this simple SMSF tax strategy can add up to a sizable difference over the other strategies when factoring in living costs and aged pension entitlements and strategies.

One thing is guaranteed.  The government is not stopping SMSFs from accessing refundable franking credits nor pension tax exemption for members over age 60 or pension tax exemption for account based pension members with $500,000 pension accounts.

Will NAB go up or down in price over time?  It has started 2018 at $29.57 but I have no idea what it will be at the end of the year – do you?