What is an Investment Strategy in SMSF?
All Self-Managed Superannuation Funds, (SMSF's) are required to have a written investment strategy. An Investment Strategy is a plan for making and holding the Self-Managed Super Fund’s assets and helps the trustee make decisions on how they are going to invest for the best interests of the members.
The investment strategy starts with the investment objectives and then outlines the parameters for the investments, usually including an asset allocation percentage.
An appropriate investment strategy will take into account a range of matters including:
- Investment Risk vs Return
- Liquidity Risk and Response (the plan for how easily and quickly the assets can be converted to cash)
- Diversification
- The fund's ability to discharge liabilities as they fall due
- Insurance needs of the members
- Whether investing in property is consistent with the investment strategy and risk profile of the SMSF
The strategy should explain how the fund’s investments meet each member’s retirement objectives.
An investment strategy would also need to explain the reasoning and strategy as to why a fund had allocated a significant portion of its funds to an illiquid asset if it had very few other investments.
The investment strategy should be based on the objectives, needs, and preferences of each individual SMSF member taking into consideration their age, their retirement needs, and their attitude towards risk and volatility.
The One Constant is Change
As circumstances change, it is important the Investment Strategy is reviewed and updated at least annually, and the associated documented Minutes are your evidence of this.
Superannuation and Pension laws can change from year to year as much as investment performance rises and falls due to local and global markets.
- Life and Investment circumstances do not stay the same from year to year so develop your habit of regularly revising your SMSF member's needs and investment strategy, documenting your decisions, and making sure these documents are minuted and made available for your SMSF Auditor, so they can ‘evidence the activities taken in compliance with the legislation.
Pro Tip: Sapience Financial can help you ensure your Investment Strategy is fully compliant with Commonwealth legislation, contains Minutes for the Self-Managed Super Fund to adopt the Investment Strategy, as well as a letter from a law firm confirming the Investment Strategy is compliant.
How we can help
Having a documented and legally compliant investment strategy for your SMSF and making sure the fund's liquidity enables it to meet the retirement needs of its members, is a key part of providing for yourself and your family into retirement, while you plan to increase your investment returns to sustain the financial needs of your retirement.
Contact us for a confidential chat about your SMSF needs.
