SMSF Investment Strategy
An investment strategy is a legally required document for every Self-Managed Super Fund (SMSF).
It outlines how the fund plans to achieve its investment objectives while complying with superannuation laws.
At HelloLedger, we assist SMSF trustees with documenting, reviewing, and maintaining investment strategies to ensure compliance with ATO regulations and support effective fund management.
What Is an SMSF Investment Strategy?
An SMSF investment strategy is a written plan that defines:
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The goals and objectives of the fund.
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The types of investments the fund will make (e.g., shares, property, cash).
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The level of risk the trustees are willing to accept.
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Liquidity needs to pay benefits, taxes, and expenses.
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How the fund will ensure investments are properly diversified to manage risk.
This strategy must be reviewed regularly and updated if circumstances change, such as adding new members, making large contributions, or altering asset allocations.
It should be specific to your Fund circumstances, taking into account relevant circumstances such as
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members’ age,
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employment status,
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and retirement needs, which influence your risk appetite.
Key Components of an SMSF Investment Strategy
1. Risk and Return Objectives
Trustees must consider how much risk they’re willing to take and what level of returns they aim to achieve to meet the retirement goals of fund members.
2. Asset Allocation and Diversification
An SMSF should spread investments across different asset classes (e.g., shares, property, fixed income) to reduce risk and volatility. Diversification is an important factor the ATO reviews to ensure compliance.
3. Liquidity and Cash Flow Management
Trustees must assess whether the SMSF can easily access cash or liquid assets to pay expenses, taxes, and member benefits as they fall due.
4. Insurance Considerations
Trustees are required to consider whether members need insurance cover, such as life insurance or income protection, and document this decision within the investment strategy.
Types of Assets an SMSF Can Invest In
SMSFs offer flexibility in choosing investments, but all assets must comply with superannuation laws and align with the fund’s investment strategy.
Trustees must ensure investments meet the Sole Purpose Test—providing retirement benefits to members—and maintain proper documentation and records.
1. Listed Shares and Managed Funds
SMSFs can invest in listed shares on the Australian Securities Exchange (ASX) and international markets, as well as managed funds. These investments must be owned by the SMSF, not individual members, and recorded under the fund’s name.
2. Residential and Commercial Property
SMSFs can purchase property, but strict rules apply:
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Residential Property: Cannot be lived in or rented by a fund member or related party.
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Commercial Property: Can be leased to a member’s business, provided it’s on arm’s length terms and at market rates.
SMSFs can also use Limited Recourse Borrowing Arrangements (LRBAs) to borrow funds for property purchases, with additional compliance obligations.
3. Term Deposits and Cash Investments
SMSFs can invest in cash accounts and term deposits for secure and low-risk returns. These accounts must be held in the SMSF’s name to maintain compliance with asset separation rules.
4. Precious Metals, Cryptocurrencies, and Collectibles
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Precious Metals (e.g., Gold and Silver): Must be securely stored and not used for personal purposes.
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Cryptocurrencies (e.g., Bitcoin): Allowed if properly documented and held in a digital wallet registered under the SMSF’s name.
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Collectibles (e.g., Artwork and Memorabilia): Strict rules apply regarding storage, insurance, and personal use.
5. Fixed Income and Bonds
SMSFs can invest in government and corporate bonds as a way to generate stable income while balancing risk. These investments must be managed in line with the fund’s investment strategy.
6. Managed Investments and ETFs
Exchange-Traded Funds (ETFs) and managed investments allow SMSFs to diversify across different asset classes, including shares, bonds, and property, while reducing risk through professional management.
Compliance and Documentation
No matter what type of asset your SMSF invests in, trustees must:
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Ensure investments are owned in the fund’s name.
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Maintain proper valuation records for annual reporting.
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Avoid any personal use of SMSF assets to comply with superannuation laws.
At HelloLedger, we assist trustees with documenting investment strategies, valuing assets, and preparing tax and compliance reports to meet ATO requirements.
SMSF Investment Strategy FAQs
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Is an investment strategy mandatory for an SMSF?
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Yes, every SMSF must have a written investment strategy that complies with superannuation laws. The ATO requires this strategy to be documented, reviewed, and updated as needed.
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What happens if my SMSF doesn’t have an investment strategy?
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If your SMSF does not have a documented investment strategy, it may fail its annual audit, resulting in penalties and possible loss of concessional tax benefits.
Does my investment strategy need to include diversification?
Yes, your SMSF’s investment strategy must consider diversification to reduce risk. Funds with concentrated investments (e.g., all in one property) must document the reasons and justify the decision.
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How often should I review my SMSF investment strategy?
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You should review your investment strategy at least once a year and whenever major changes occur, such as adding or removing members, making significant investments, or starting pension payments.
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Can an SMSF own cryptocurrency?
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Yes, SMSFs can invest in cryptocurrencies, but trustees must ensure the digital wallet is registered under the SMSF’s name and transactions are properly recorded and valued.
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What role does insurance play in my investment strategy?
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The investment strategy must document whether the fund’s members have considered insurance coverage, such as life insurance or income protection. While it’s not mandatory to take out insurance, trustees must demonstrate they’ve reviewed this option.