Developing an SMSF investment strategy

An SMSF investment strategy is a plan for making, holding and liquidating the investments of the self-managed superannuation fund, while ensuring that the strategy reflects the objectives of the SMSF. An investment strategy details what your SMSF can invest. All investment-related actions must follow the investment strategy. The trustees of an SMSF are required to prepare and implement, on an ongoing basis, an investment strategy of that SMSF.

After your investment strategy is formulated and agreed upon by all trustees, you should document it thoroughly. The investment strategy should be kept in a safe, accessible location for any future reference.

The strategy should be developed and agreed uponĀ beforeĀ you start investing. Your investments should align with the strategy.

As a trustee, you must be aware of certain investment restrictions imposed by legislation, particularly in connection with transactions involving members and related parties.

POINTERS FOR DEVELOPING AN INVESTMENT STRATEGY

The following steps should be taken into account while formulating the investment strategy.

Seek answers to pertinent questions

While establishing an investment strategy, you need to arrive at answers to basic questions such as:

  • Do you adhere to an investment methodology to reach your desired retirement payout?
  • How will you achieve your investment strategy?
  • Does your strategy identify the short-term and long-term goals?
  • Does your investment strategy consider the risks?
  • Does your investment strategy consider the needs of each of the members?
  • Does your investment strategy consider the cash flow requirements?
  • Does your investment strategy consider the liquidity requirements of the members of the SMSF?
  • Is insurance necessary for the members of the SMSF?

Set the objectives for the SMSF

  • Understand that your investment strategy evolves as you transition from one phase of life to another. The investment strategy that suited you in the accumulation phase of your life may not be appropriate as you approach your retirement phase. Based on this, get a realistic estimate of the amount of money you would need at the time of your retirement, and how you are going to achieve it.
  • The objective should include a benchmark to compare. For example, achieving an average return of 1% above inflation from the SMSF portfolio can be a benchmark.
  • Consider the Personal Circumstances of each member, including their age and income needs.
  • Understand the retirement goals of each member.
  • If the risk profiles of members are different, trustees can consider to segregate member accounts and to have different investment strategies for various members.

Diversify to minimise the risk

You can minimise the risk by diversifying across many asset classes such as equity, bonds, fixed interest, and property. Diversification can be achieved through:

  • Investing across a range of asset classes.
  • Investing in multiple assets, ensuring proper coverage, within each asset class.
  • Investing in Australia and overseas.

Ensure the liquidity of the SMSF

The liquidity of the fund, including the ability of the fund to pay member benefits and other fund expenses such as the ability to maintain insurance cover for members, ongoing administration costs and annual audit costs, is essential.

Consider whether you need insurance

Trustees of the SMSF should consider the death and disability insurance needs of each member, as well as the level of cover that is appropriate. The types of insurance that can be considered include life, Total Permanent Disability (TPD), trauma and income protection. The decisions taken should be documented in minutes for future reference. Also, record the reasons for each decision, even when a decision is to not opt for any insurance for members.

SMSF INVESTMENT STRATEGY OF QUIETGROWTH

QuietGrowth robo advice is customised to serve the best interests of the trustees of a self-managed super fund (SMSF). We have been managing the superannuation investments in SMSFs where the fund trustees are individuals, corporates or trusts. Learn about the investment strategy of QuietGrowth by referring the Investment Methodology of QuietGrowth service.