Your self-managed superannuation fund (SMSF) investment strategy

Every SMSF must have an investment strategy. For the start of this new year, it is always good to look at what your investment goals are.

 

What is an Investment Strategy?

Your investment strategy is your plan for making, holding and realising assets consistent with your investment objectives and retirement goals. It should set out why and how you’ve chosen to invest your retirement benefits in order to meet these goals.

The superannuation laws require that you must prepare and implement an investment strategy for your self-managed super fund (SMSF) which you must then give effect to and review regularly.

 

What needs to be included in my SMSF’s investment strategy?

Your SMSF investment strategy should be in writing. It should also be tailored and specific to the relevant circumstances of your fund rather than a document which just repeats the words in the legislation.

Relevant circumstances may include (but are not limited to) personal circumstances of the members such as their age, employment status, and retirement needs, which influence your risk appetite. Your strategy should explain how your investments meet each member’s retirement objectives.

Under the super laws your strategy must consider the following specific factors in regard to the whole circumstances of your fund:

    • risks involved in making, holding, and realising, and the likely return from your fund’s investments regarding its objectives and cash flow requirements
    • composition of your fund’s investments including the extent to which they are diverse (such as investing in a range of assets and asset classes) and the risks of inadequate diversification
    • liquidity of the fund’s assets (how easily they can be converted to cash to meet fund expenses such as the cost of managing the fund and income tax expenses)
    • fund’s ability to pay benefits (such as when members retire and require a lump sum payment or regular pension payments) and other costs it incurs
    • whether to hold insurance cover (such as life, permanent or temporary incapacity insurance) for each member of your SMSF.

You also need to articulate how you plan to invest your super or why you require broad ranges to achieve your investment goals to satisfy the investment strategy requirements.

The percentage or dollar allocation of the fund’s assets invested in each class of investment should support and reflect your articulated investment approach towards achieving your retirement goals.

You should also include the reasons why investing in those assets will achieve your retirement goals.

 

Are there any restrictions under the super laws with respect to my SMSF investments?

You are free to choose what type of assets you may invest in, providing those investments:

    • are permitted by your fund’s trust deed, and
    • are not prohibited by the super laws, and
    • meet the sole purpose test.

For instance, you need to be aware of the in-house asset rules and acquisitions from related party rules. You also need to be aware of the non-arm’s length income rules for income tax purposes.

Be Careful – where your investments breach the super laws, the ATO can take compliance action against you. Depending on the severity of the breach, the ATO may apply penalties and potentially disqualify you as trustee.

For more comprehensive education, information, and resources for your SMSF, visit our SMSF Knowledge Centre on https://www.financiallysorted.com.au/selfmanaged-superfunds/.


General Advice Warning

The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.

Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.

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