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Super 101: our SMSF accountants talk SMSF investment strategies

Published On: February 24, 2020Categories: Accounting, Tips & Tricks

Self-managing your superannuation isn’t for everyone. Unlike Australians who choose an industry or retail fund, SMSF comes with a lot of extra work.

This work starts from the very beginning, with your SMSF investment strategy.

Not only is building a comprehensive and cohesive strategy a sensible thing to do if you want to maximise the return on your super investments, but it’s also a requirement if you’re planning to self-manage!

Today, our SMSF accountants in Melbourne will be explaining what your strategy needs to consider.

Do I need an SMSF strategy?

Yes!

According to Section 52(6) of the Superannuation Industry (Supervision) Regulations 1994, this is non-negotiable – the trustees of a SMSF (read: you) must formulate a written SMSF investment strategy, tailored for your circumstances.

This written document serves as proof that the trustees of a fund have given appropriate consideration and thought towards how their SMSF investments will be managed, and that they aren’t simply making things up as they go.

It isn’t a once-and-done thing, either – there’s a requirement to review your strategy on a regular basis.

In addition to being a legal requirement, regular reviews also allow you to assess the performance of your strategy, and make changes to your investments in order to better achieve your superannuation objectives and retirement goals.

What goes into your SMSF strategy?

Your strategy must outline two things:

Your investment objectives and retirement goals
The types of investments your SMSF can make

These two are the cornerstones of any SMSF strategy. While the law doesn’t mandate what form your SMSF investment strategy should take, these two are non-negotiable!

There’s no legally-mandated length for your SMSF strategy – in some cases, the strategy document can be as short as a single page.

If you want your SMSF to adequately prepare you for retirement however, we suggest going into as much detail as possible!

Our SMSF accountants in Melbourne believe that the most effective investment strategies go beyond simply listing the assets and asset classes your SMSF will invest in. Instead, the best strategies go into intense detail about…

Risk

Namely, it should lay out the risks involved with the investments you’ve chosen for your SMSF fund, as well as the likely returns you will enjoy relative to your investment objectives.

Start by including the risks and rewards associated with holding certain assets or asset classes.

When drafting your SMSF investment strategy, it’s also important that you outline how much risk you’re willing to take on with your fund.

Again, this decision is entirely personal – for example, older Australians may prefer less risky, conservative investments, while younger members may take a growth-focused approach.

SMSF accountant melbourne nest egg

Composition: does your SMSF meet diversification requirements?

When it comes to your money, you don’t want to put all of your eggs in the same basket.

A lack of diversification is one of the most common red flags that pops up with SMSFs, to the point where the ATO regularly contacts funds that it believes are carrying too much of their value in a single asset or asset class!

When creating your SMSF investment strategy at the very beginning, it’s a good idea to put in writing the intended composition of your fund, as well as the associated risk (see above).

While the final decision is still yours, as a general rule, a more diverse spread of investments reduces risk.

Your fund’s liquidity and ability to pay

Liquidity is an accounting term that refers to how easy it is to convert certain assets into cash that you can spend.

While it may not sound relevant now (especially if you’re many years away from the preservation age), liquidity still matters.

Specifically, it relates to paying the costs of management and upkeep for the fund, as well as any tax your superannuation earnings may incur and potentially insurance premiums.

It’s also important that your strategy considers and accommodates for the fund’s ability to pay benefits when you retire.

Creating your SMSF investment strategy

So now you know what goes into your SMSF investment strategy. By no means is this an exhaustive explanation of SMSF strategies – as with many things super, there’s a lot of other work that happens behind-the-scenes.

Unfortunately, this is something that our SMSF accountants can’t help with.

While we may not be able to provide advice regarding your SMSF investment strategy (only a financial advisor with a specialisation in SMSF can do that), the majority of SMSF accountants in Melbourne can help you a number of other ways:

Taking care of the rest of the setup process for you
Administer your fund once it’s up
Managing the fees and charges your fund may incur
Providing audit services
Preparing SMSF statements and reports

Once you’ve created your investment strategy, hand it off to one of our accountants in Melbourne. We’ll do the grunt work for you, and give you the confidence that comes with knowing that your SMSF is building towards a well-funded retirement.