Investment Strategy

A Self Managed Super Fund (SMSF) must have a documented investment strategy.

The strategy should set out the manner in which funds are to be invested for the benefit of the members.

It should also take into account the risks of investments, expected returns, diversification, asset allocation and the liquidity of the fund.

Please read on to find out what investment strategies you can implement.

Investment strategies

With so many investment options available it is sometimes difficult to determine where to best channel funds.

Consider setting a percentage range of fund assets to be allocated to each available asset class, such as Australian shares, international shares, cash, fixed interest and property.

For example, a standard conservative strategy may allocate 40% cash, 20% fixed interest and 40% growth assets.

Altering the strategy

It is quite common for investors to change the strategy according to the age of the member and their perceived investment profiles.

For example, a member who has an 80% allocation to shares in their younger years may seek to switch to 30% shares as they get older.

Over time, a member may get older and take less investments risks and one would expect their investment strategy to change to reflect this.

Updating the investment strategy

Where your circumstances change, it is important to update the strategy to take these changes into account.

The strategy may also have to be altered where there are new updates in legislation or the market.

Members may commence drawing down a pension, become injured or go in and out of work.

These are important changes in life that should be reflected.

For example, a fund’s members experience large investment losses due to severe economic conditions. The trustees determine that future losses may jeopardise the funds investment goals. They revisit the investment strategy and determine how best to move forward to avoid this. That way, they can ensure that the fund remains profitable.

For help determining whether your investment strategy needs changing please enquire online and our expert financial advisers will contact you to discuss your situation.

Comparing your investment strategy

It may sound odd, but many funds do not have a strategy that matches their actual investments and investment style!

In an audit, the regulator will expect to see all these features and will query the trustees ability if they are not present.

For example, a fund may have an investment strategy that dictates 30% of investment in shares, 40% in cash and 30% in managed funds. Despite this, the fund may have decided to liquidate its assets and borrow to buy a property.

The above strategy does not match the assets that the fund has. Either the assets need to be re-balanced or the strategy corrected. A mismatch like this cannot be maintained.

Do I really need to I update my investment strategy?

Yes, definitely. Over time the members change their investment risk and profile and the investment strategy should be changed to match this.

You should keep signed copies of all investment strategies created over the years.

Many advisers would suggest physically updating your investment strategy at least every two years, especially if fund assets drop in value or investment markets change dramatically.

How long does my investment strategy need to be?

The ATO has no “sample” strategy or formal set of guidelines, however it must be comprehensive enough to cover the gamut of situations that your fund may face.

Generally, the strategy should aim to include the range of assets your funds aims to invest in, the risk of the investments and the expected returns, whether the assets can be sold to pay for costs associated with the fund, the funds ability to pay benefits to members and the individual circumstances of each member including their age and anticipated retirement plan.

Can I write my own investment strategy?

Yes, but we recommend that you speak to a financial adviser before attempting to do this.

That way, you can ensure that your strategy reflects your investment goals and the assets that your fund currently has.

Seeking professional help and doing it right the first time will help avoid encountering issues later on.

What will happen if I don’t have one?

If you do not have an investment strategy then your super fund is in breach of the superannuation rules.

The ATO could fine both the fund and you as trustee.

If the strategy is insufficient or not up to date, the ATO may give you an order to fix the strategy up, before checking it again.

To get tax advice for your SMSF please enquire online to get in touch with a team that specialises in Self Managed Super Funds!

Can I override the investment rules?

You cannot use the strategy to allow your fund to invest in assets that a SMSF cannot invest in or that is in breach of the rules.

The sole purpose of a fund is to provide retirement benefits to members and this must be the overarching premise of your strategy – it cannot be a way of circumventing the rules.

Speak to a SMSF expert!

To make the best investment decisions for your SMSF it is important that you speak to professionals!

A finance expert can help you devise an investment strategy that meets your needs. To get in touch with one, please enquire online and our team will contact you to discuss your situation.

Note: this website is for informational purposes only and should not be substituted for professional financial or taxation advice.