A Self Managed Super Fund (SMSF) investment strategy is not only a requirement under super laws, but it is also an important framework to enhance your savings for retirement.
The investment strategy for your Self Managed Super Fund is your plan for making, holding, and realising assets that are consistent with your aspirations and goals. The volatility in the market that has ensued as a result of the COVID-19 pandemic has placed SMSF Trustees at risk of being outside of their investment strategy. This suggests it may be appropriate to review your current investment strategy to confirm it remains suitable and in line with your goals, or to adjust it accordingly.
What is an SMSF Investment Strategy?
The Trustees of an SMSF are required to ensure that an SMSF has a valid investment strategy, which outlines the strategy, assets the fund will invest in, and the allocations. The investment strategy must be considerate of the allowable investments noted in the SMSF Trust Deed. Your SMSF investment strategy should be in writing and individualised to the specific and relevant circumstances of your fund.
Investment strategies should be considerate of the needs of the members, taking into account risk management, the age of the members, their needs for liquidity and growth and risk profile. While the laws surrounding superannuation don’t define exactly what is required in your investment strategy, however, they do provide some guidance on some key factors to consider when preparing your investment strategy.
These factors are as follows:
- The risks involved in making investments and their return, taking into account your objectives and cashflow requirements.
- Diversification and the benefits of investing across numerous asset classes.
- Liquidity of your funds investments and assets.
- Whether the trustee should hold insurance cover.
- Your funds ability to pay benefits when you retire, as well as other costs
A common pitfall for many SMSF’s is that the investment strategy is too broad and not defined enough. The Australian Taxation Office, which is the regulatory body of SMSF’s, has specifically stated that when formulating your investment strategy, it is not a valid approach to merely specify investment ranges of 0 to 100% for each investment asset.
How Often Should I Review My SMSF Investment Strategy?
As recommended by ATO guidelines, your investment strategy should be reviewed at least annually by the trustees. By reviewing your strategy regularly, you can certify it continues to meet your current and future goals and objectives.
Certain significant events may also prompt you to review your strategy. These include but are not limited to:
- End of the financial year
- A market correction
- When a new member joins or departs your SMSF
- When a member begins receiving a pension
- A change in financial needs of the SMSF’s members
- Trustees wish to undertake new investment opportunities that are not permitted in their current investment strategy
It should be pointed out that the Trustees don’t necessarily have to make changes to the investment strategy each time it’s reviewed. Reviewing your SMSF investment strategy regularly is a way to ensure that the strategy is still appropriate for the members of the SMSF.
However, if you do decide to change parts of your investment strategy, it’s important to note that any changes will require an amendment, which means signing off on a new investment strategy.
Yield Financial Planning is Here to Help
Ultimately, regularly checking in to review and ask relevant questions about your SMSF investment strategy is the wise approach to running your superannuation fund. This ensures that your SMSF is appropriate and on target to achieve the goals and cashflow requirements of the Trustees.
If you need assistance with implementing or reviewing your investment strategy for SMSF, the team of experts at Yield are here to help.
The team at Yield are retirement and superannuation experts, who are adept at navigating relevant legislation and the ATO’s expectations. Several of our clients enjoy the flexibility and cost benefits an SMSF can offer.