Key Takeaways
- Legal Requirement: It is a mandatory requirement for trustees to prepare, implement, and regularly review a written SMSF investment strategy.
- Tailored Approach: The strategy must be unique to the specific needs and retirement goals of the fund’s members, rather than a generic template.
- Risk vs Return: Trustees must balance the objective of maximising member returns with an appropriate level of risk based on the members' life stages.
- Diversification is Critical: A compliant strategy should consider the benefits of spreading investments across asset classes like shares, property, and cash.
- Liquidity Management: The fund must maintain sufficient liquidity to pay member benefits as they retire and cover ongoing administrative costs.
Trustees are required by law to prepare and implement a comprehensive SMSF investment strategy. This strategy provides the essential framework by which all investment decisions are made for the fund, ensuring that the interests of all members are protected and prioritised.
An effective strategy should be unique to the requirements of the fund and its members. It should not be a "set and forget" document; it must be reviewed at least annually and updated whenever there is a significant change in the fund's circumstances or its members' needs.
Preparing a Compliant SMSF Investment Strategy
The strategy must reflect the specific purpose and circumstances of the fund. According to the Australian Taxation Office (ATO), when opening an SMSF, trustees must consider:
- Risk and Return: Investing in a manner that seeks to maximise member returns while having regard to the specific risks associated with those investments.
- Diversification: The benefits of investing across a variety of asset classes, such as Australian and international shares, property, fixed interest, and cash, to manage volatility.
- Liquidity: The ability of the fund to pay benefits as members reach retirement, as well as meeting other costs incurred by the super fund (such as tax and audit fees).
- Insurance: Trustees must also consider whether the fund should hold insurance cover (such as life or TPD insurance) for one or more members.
Tailored Investment Options
One of the primary benefits of a self-managed fund is the flexibility it offers. Members can tailor their own strategies and select specific investments that align with their personal wealth management goals. Common investment choices include:
- Listed Shares: Direct ownership of companies on the ASX or international exchanges.
- Managed Funds & ETFs: Accessing professionally managed portfolios or index-tracking funds.
- Term Deposits and Cash: Providing stability and liquidity for the fund.
- Direct Property: The ability to hold residential or commercial real estate within the superannuation environment.
SMSF Investment Restrictions: What You Can't Do
While SMSFs offer great freedom, they are subject to strict regulations. Trustees must understand the investment restrictions to avoid heavy penalties or the fund being declared non-compliant. You cannot:
- Lend money to members: You cannot lend fund money or provide financial assistance to a member or a member’s relative.
- Access funds early: Assets cannot be accessed until a legal condition of release is met (e.g., reaching preservation age and retiring).
- Personal use of assets: You cannot use SMSF assets for personal benefit (for example, you cannot buy groceries with an SMSF chequebook or live in a residential property owned by the fund).
- Breach the "In-House Assets" test: Generally, the value of in-house assets (loans to or investments in related parties) must not exceed 5% of the fund’s total assets.
- Acquire certain assets from related parties: With limited exceptions (like listed securities or business real property), a fund cannot acquire assets from members or their relatives.
Ensuring your fund remains compliant requires ongoing attention. For those who want professional oversight without losing control, our portfolio administration services can help track your compliance and reporting requirements.
Managing an SMSF requires a significant commitment of time and expertise. If you want to ensure your strategy is not only compliant but also optimised for your future, our team is here to support you.
Contact a Morgans adviser today to review your strategy or find a local branch to discuss your superannuation goals.
Frequently Asked Questions
What is an SMSF investment strategy?
An SMSF investment strategy is a written plan that outlines the fund’s investment objectives and the types of investments it will hold. It serves as a guide for trustees to ensure the fund meets the retirement needs of its members.
How often should I review my SMSF strategy?
The ATO requires trustees to review their strategy regularly. At Morgans, we recommend a formal review at least once a year or whenever there is a change in the fund’s membership or a major shift in market conditions.
Can an SMSF invest in just one asset class?
While a fund can technically invest in a single asset (like one property), the trustee must be able to demonstrate that they have considered the risks of a lack of diversification and how the fund will meet its liquidity requirements.
What are the penalties for not having an investment strategy?
Failure to have a compliant, written investment strategy can result in significant administrative penalties from the ATO, which are levied against the trustees personally rather than the fund.
Is an investment strategy the same as a financial plan?
Not exactly. While they overlap, an SMSF investment strategy is a specific legal requirement under the Superannuation Industry (Supervision) Act. A financial plan is a broader document covering your entire personal financial situation.
Who can help me write my SMSF investment strategy?
While trustees are ultimately responsible, you can seek help from a financial adviser or an SMSF specialist to ensure your strategy is compliant and robust.
