Taking control of your retirement through a self-managed super fund (SMSF) is a significant decision that puts you in the driver’s seat of your financial future. If you’ve decided that an SMSF is right for you, one of your most important tasks is developing a comprehensive investment strategy.
What is an SMSF investment strategy?
Under super laws, you are required to prepare and implement an investment strategy for your SMSF and review it regularly. The strategy sets out your SMSF’s planned investment assets and objectives, and why the fund has chosen those investments to meet the retirement goals of the members. It’s important to remember that the strategy isn’t a “set and forget” document: the strategy should evolve as circumstances change over time.
Key elements to explore while developing your SMSF investment strategy
Creating a thoughtful, well-documented investment strategy means you’re not just meeting your legal obligations, you’re setting your SMSF up for long-term success and securing your retirement future.
Important points to consider are:
Member circumstances and objectives: Think about each member’s unique situation, including age, planned retirement date, desired retirement lifestyle, and risk tolerance. These factors will significantly influence how you structure your investments and what timeline you’re working with to achieve your goals.
Diversification: Spreading your investments across different asset classes can help manage risk. Your strategy should outline how you’ll allocate funds between different classes of assets. A well-diversified portfolio can provide protection against market volatility in any single sector.
Liquidity considerations: Your strategy must address how the fund will maintain sufficient liquidity to pay ongoing expenses and taxes, meet benefit payments when members retire, and handle unexpected costs or market downturns. Without adequate liquidity planning, you might not be able to meet your fund’s obligations.
Understanding SMSF investment requirements and restrictions: SMSF investments must be permitted by your fund’s trust deed and comply with super laws. Investments require clear legal ownership by the fund and must be made on a commercial arm’s length basis at true market value. All investments must meet the sole purpose test, that is, that your fund has been set up to provide retirement benefits to members or death benefits to beneficiaries. An SMSF, with some exceptions, generally cannot acquire assets from or lend money to fund members or related parties, borrow money, or allow members to gain immediate benefits from the fund’s investments.
Your insurance strategy: You are also required to formulate, review regularly and implement an insurance strategy. This may influence your investment strategy. Determine whether your SMSF will provide insurance for members, such as life insurance, total and permanent disability cover, or income protection insurance. Your strategy should explain your approach to member insurance and how it complements your overall retirement planning.
Documenting and reviewing your strategy
When formulating your investment strategy, be specific about asset allocations for different investment classes or material assets and how these investments will help achieve members’ retirement goals. Reviews of your fund’s strategy should be undertaken at least annually, or whenever significant events occur, such as a member joining or leaving, major market movements, changes to members’ retirement goals, or significant legislative changes affecting SMSFs.
Seek professional guidance
Licensed financial advisers with specialist SMSF knowledge can help you develop a tailored investment strategy, understand your compliance obligations, and navigate the complexities of SMSF management. The ATO also offers support, including a self-paced module titled “Running a self-managed super fund”, which covers a trustee’s obligations when running an SMSF, managing investments, how to manage contributions and rollovers, paying super benefits and keeping up with reporting and administration.
