Self-Managed Super Fund Investment Strategy

An investment strategy is crucial for any trustees of a Self-Managed Super Fund, not only for the obvious reason of creating the best environment to generate the returns desired but also from an administrative perspective as well.

Because an independent audit of each fund is required annually, a fund’s accountant will be asked for a written investment strategy as part of the process. This is because as markets and personal situations change over the course of the fund’s life, the investments need to reflect that, and the requirement of the investment strategy is used almost as a prompt to keep trustees focused on the fund and its changing needs.

Of course, having a well-developed investment strategy is essential if the fund is to perform as expected as well, but how you approach that investment is, by definition of a self-managed fund, down to the trustees. There are several things to consider when looking at developing an investment strategy, these are:

• Where the members are in life – If retirement is decades away for all members, then liquidity is not a priority. In this case, investing for growth, taking advantage of market volatility makes sense. If members are closer to retirement age, then maintaining liquidity levels to have access for pension funds as required means taking a more reserved investment approach.
• How much Risk you can tolerate – Whether one member or more, how risk-averse the members are will dictate strategy to some extent. Every member needs to be comfortable with the investments being made, and that means acceptable risk levels for all.
• Diversity – While investing heavily in the major banks may seem like a solid, low-risk plan, that is not necessarily so. Think what would happen if a rerun of the financial crash of a decade ago happened. That is why diversity is important. Spread investments across sectors and different asset types. What is certain is markets will move up and down, with a diverse portfolio, one asset type or market sector collapsing will not destroy your fund.
• Tax – Tax rules are complex, minimizing the tax exposure for any member means planning asset disposals to take advantage of tax concessions available to members.

When creating a tax strategy, cover every aspect of the approach in regard to these factors. When writing the strategy, it does not have to be long, 800 words will cover it. Ensure clarity and highlight the factors involved in the decision process.  

Having a written strategy is also important for any legal issue. For instance, the SIS Act allows a member or their dependent to recover any losses or damage to an investment from the trustee through the legal system. In such a situation, a written investment strategy can be central to the defence. Trustees can be fined or sued for not having an acceptable investment strategy and the written version covers that, without which a fund could lose its compliance status.

For the full breakdown of Self-Managed Super Funds (SMSF) check out our article: The Self-Managed Super Fund and why you should have one

We welcome you to give our team a call to discuss your investment goals and objectives.

You can call Walker Capital Australia on +61 2 8076 2210, and we’ll see how we can help you achieve your investment goals.