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Reviewing your SMSF Investment Strategy

The superannuation laws require Trustees to prepare and implement an investment strategy when an SMSF is established and then to review it regularly, which means at least annually, and also as necessary if circumstances change.

In turbulent times, such as those we’re experiencing, reviewing your SMSF investment strategy is critical to make sure that it continues to meet your needs. The best defence against uncertainty in turbulent times is to have a clearly defined long term investment strategy which will help to guide you.

The investment strategy is your written plan for reaching your retirement goals and objectives. The things you would normally consider are how much risk you want to take, what type of investments you want, what sort of returns you require to meet your goals and how much cash you’ll need to meet your needs. For example if you are drawing a pension from your fund your cash requirements will be higher.

The strategy needs to be tailored to meet the needs, objectives and risk tolerance of the fund members and must cover the following factors:

  • The likely return from the SMSF’s investments and the risks associated with those investments
  • The level of diversification of the fund’s investments including the risk of inadequate diversification
  • The liquidity of the fund’s assets and also the cash flow requirements to meet fund expenses and also benefit payments
  • Whether to hold insurance cover for the fund members

Once the investment strategy has been set, the actual investments must be made in accordance with the strategy. The inclusion of benchmarks and asset allocation ranges will assist the trustees to monitor their investments and ensure that the fund’s investments continue to align with their strategy.

In recent times the Australian Taxation Office, the regulator for SMSFs, has drawn attention to the following:

  • They don’t consider that 0% – 100% asset allocation ranges are a valid approach
  • If you’re investing in just one asset class you need to clearly document that you’ve considered the risks of lack of diversification
  • Your investment strategy is not a ‘set and forget’ document and it needs to be reviewed regularly and also when certain significant events occur such as:
    • A market correction
    • When a member joins or leaves a fund
    • When a member commences to receive a pension
    • If you have any queries or would like assistance with documenting your investment strategy or review please contact us.