SMSF trustees are required to review their investment strategy at least annually and update it whenever significant changes occur within the fund.
SMSF Investment Strategies
Every Self-Managed Super Fund must have an investment strategy. While many trustees understand this requirement in principle, fewer appreciate how important the investment strategy is from a compliance perspective.
An SMSF investment strategy is not simply a document created when the fund is established and then filed away. It is intended to guide the way the fund invests and demonstrate that trustees have carefully considered how the fund’s assets support its long-term retirement objectives.
Auditors and regulators regularly review investment strategies to ensure they are appropriate for the fund’s circumstances. When the strategy is poorly documented or does not reflect the fund’s actual investments, it can become a compliance issue.
For this reason, SMSF trustees should understand what the law requires and how their investment strategy should be maintained over time.
What Is an SMSF Investment Strategy?
An SMSF investment strategy is the documented plan that outlines how the fund intends to invest its assets to meet its retirement objectives.
The strategy should explain how the trustees have considered the key factors required under superannuation law when determining how the fund’s money will be invested.
Importantly, the investment strategy should reflect the actual approach the fund takes to investing rather than simply repeating generic wording.
A well-prepared investment strategy demonstrates that trustees have carefully considered how their investments align with the fund’s objectives and risk profile.
Why the Investment Strategy Matters
The investment strategy serves several important purposes.
First, it provides a framework that guides how the fund invests. Trustees should consider the strategy when making investment decisions so that individual investments align with the overall approach of the fund.
Second, the strategy demonstrates that trustees have considered the risks and responsibilities involved in managing the fund’s assets.
Finally, the investment strategy is an important compliance document. During the annual SMSF audit, auditors will review the strategy to confirm that it addresses the required factors and is consistent with the fund’s investments.
When the strategy does not reflect the fund’s actual asset allocation or lacks sufficient detail, auditors may raise concerns.
Factors Trustees Must Consider
Superannuation law requires SMSF trustees to consider several factors when preparing and reviewing their investment strategy.
These factors help ensure trustees have properly considered how the fund’s assets are managed.
Risk and Return
Trustees must consider the likely risk and return associated with the fund’s investments.
This includes assessing how the chosen investment approach aims to maximise member returns while appropriately managing the risks the trustees are prepared to accept, having regard to the fund’s objectives.
Diversification
Trustees must also consider whether the fund’s investments are appropriately diversified.
Diversification helps reduce risk by spreading investments across different asset classes rather than concentrating too heavily in a single type of asset.
In practice, many SMSFs hold a concentrated investment such as property. Where this occurs, the investment strategy should explain why this approach is appropriate for the fund.
Liquidity
Liquidity refers to the fund’s ability to meet its financial obligations when they arise.
Trustees must consider whether the fund will have enough accessible assets to meet expenses such as:
- tax liabilities
- administration costs
- pension payments
Funds with large illiquid investments should ensure their strategy addresses how these obligations will be managed.
Ability to Pay Member Benefits
Trustees must also consider the fund’s ability to pay member benefits when required.
This becomes particularly important as members approach retirement and begin accessing their super through pension payments.
The investment strategy should reflect how the fund will manage these obligations.
Insurance for Members
SMSF trustees must consider whether the fund should hold insurance for its members.
This typically includes life insurance, total and permanent disability insurance or temporary incapacity (income protection) insurance.
Even where the trustees decide not to hold insurance within the fund, the investment strategy should document that this consideration has been made.
Avoiding Generic Investment Strategies
One of the most common issues identified in SMSF audits is the use of generic or templated investment strategies that do not reflect the circumstances of the fund.
For example, some strategies include broad ranges across multiple asset classes, but the fund may only hold a single investment such as property.
When the strategy and the actual investments do not align, it can create compliance concerns.
Trustees should ensure their investment strategy clearly explains the approach the fund has taken and why that approach is appropriate.
A strategy that reflects the fund’s real investment structure is far more effective than a document that attempts to cover every possible investment type.
When an Investment Strategy Should Be Reviewed
An SMSF investment strategy should not remain static. Trustees should review the strategy regularly to ensure it continues to reflect the circumstances of the fund.
A review may be appropriate when:
- the fund acquires a new asset
- members approach retirement
- a pension is commenced
- market conditions change significantly
- the objectives of the members change
In addition, trustees are required to review the strategy at least annually as a minimum compliance requirement.
Documenting these reviews helps demonstrate that the trustees are actively managing the fund.
The Importance of Documentation
Like many aspects of SMSF administration, documentation is critical.
Trustees should ensure that their records include:
- the current investment strategy document
- trustee minutes confirming the strategy has been reviewed
- updates where significant investment changes occur
These records help demonstrate that trustees have fulfilled their obligations under superannuation law.
Clear documentation also helps support the fund during the annual SMSF audit.
Common Investment Strategy Issues
Auditors frequently identify similar issues with SMSF investment strategies.
Some of the more common concerns include:
- strategies that are too generic
- strategies that do not reflect the fund’s actual investments
- failure to document insurance considerations
- lack of evidence that the strategy has been reviewed
- insufficient explanation where investments are highly concentrated
Addressing these issues early can help prevent compliance concerns later.
Need Help Reviewing Your SMSF Investment Strategy?
Maintaining an appropriate investment strategy is an important responsibility for SMSF trustees. The strategy should reflect the circumstances of the fund and demonstrate that trustees have carefully considered how the fund’s assets are invested.
If you are unsure whether your SMSF investment strategy remains appropriate, or if your fund has experienced changes such as new investments or the commencement of a pension, it may be worth reviewing the strategy.
If you would like assistance reviewing your SMSF investment strategy, you can contact our team to discuss your fund and ensure your documentation and compliance processes remain up to date.
With over 15 years in superannuation, Millinda Cobban brings extensive experience in SMSF compliance and administration. She has a strong passion for education and helping trustees navigate complex regulatory requirements with clear, practical support.
GENERAL ADVICE DISCLAIMER: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Before making any investment decision within your SMSF, you should consider whether the information is appropriate to your circumstances and seek professional advice where required.