SMSF investment strategy handbook


A self-managed super fund (SMSF) is a private super fund that you manage yourself. When you manage your own super fund, you put the money you would normally put in a retail or industry super fund into your own SMSF while choosing the investments and the insurance yourself.

Self-managed super funds are popular because they give investors the freedom to select how to make that investment. With this freedom come some tax duties that must be met. The Australian Tax Office's (ATO) definition of an SMSF investment strategy is explained here, along with tips on how to manage your long-term objectives.

What is an SMSF investment strategy?

As its first 2 letters imply, you need to self-manage your super, and that includes its investments and the likely risks and returns. Your plan for the assets, including performance goals and retirement-related plans, is your SMSF investment strategy.

An SMSF investment strategy should explain your rationale for selecting certain investments as well as how those investments will help you reach your retirement objectives. With this also comes the responsibility of regularly re-assessing this strategy.

How often should an SMSF investment strategy be reviewed?

To make sure your investment strategy is compliant, you should examine it at least once a year. Every review must be recorded to explain what trustees thought about the investment strategy and whether any adjustments are required.

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What happens in a market correction?

A market correction - whether in property or shares - may necessitate a review of your fund's investment strategy. A market correction could make the values of these assets fall, with that changing the proportion of your SMSF dedicated to each asset. For example, if the share market’s value drops, it may cause a skew in equity allocation. Failure to conform with the strategy can make the fund non-compliant, which in turn attracts penalties.


What does an SMSF investment strategy include?

There are numerous strategy templates available for you to adopt, but the ATO states that you must include the following 5 items in your strategy:

1. risks associated with creating, holding and realising investments in your fund, as well as the expected return on those investments given your fund's goals and cash flow needs

2. structure of your fund's investments, including how diversified they are (by investing in a variety of assets and asset classes) and the risks associated with insufficient diversification

3. liquidity of assets of the fund, meaning how easily they can be converted to cash to meet fund expenses such as the cost of managing the fund and income tax expenses

4. capability of the fund to pay benefits (such as recurring pension payments), as well as other expenses it incurs

5. insurance coverage, such as life, permanent, or temporary disability insurance, provided for each member of your SMF

The document should be "tailored and specific" to your circumstances rather than just checking off legal requirements, according to the ATO.


How to develop an SMSF investment plan

A financial advisor can best execute an investment strategy. It can be as straightforward as a Word document that covers the five points mentioned above, your asset allocations, and the justifications for those percentage values. You must consider your age, your appetite for investment risk at that age, and the possibility that as you become older, you would want to mitigate risk more.

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What happens if I fail to create or regularly reassess my SMSF investment plan?

A new trustee or member might have a hard time navigating the maze of SMSF compliance and tax laws. In summary, your fund runs the risk of being deemed "non-compliant" which is serious business according to the ATO, if you don't have an investment strategy or it isn't sufficient. You can resolve this insufficiency by adding a signed and dated appendix to your strategy, which your SMSF auditor can then review.

A review may be required in certain situations, such as when a market correction occurs, a member joins or departs, they begin collecting a pension, or other significant life events occur. As a trustee, you are required to examine the investment strategy yearly, per the ATO's requirements.


How to proceed with an SMSF investment plan

Every year, your investment strategy is audited, and there's a potential that your auditor will ask for further details or justifications about the assets you've allocated to the fund.

Although the ATO is unable to help you with the creation of your SMSF strategy document, it does advise you to consult a financial advisor. This is where we come in. Reach out to one of our Create and Protect Financial Planning specialists and we will guide you in the right direction!



Disclaimer:The information included in all of our blog content is of general nature only. Any general advice included in this information has been prepared without taking into account your objectives, financial situation or needs.
Because of this, you should consider the appropriateness of the general advice to your objectives, financial situation and needs and obtain professional advice before acting on any general advice that we have provided to you.

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