SMSF Investment Strategy

An Investment Strategy sets out what your SMSF can invest in. When Superannuation Warehouse sets up a new SMSF, we issue you with an Investment Strategy Template which you can edit to reflect your choice of investments.

A good Investment Strategy will give your SMSF a wide choice of investment options. SMSFs can generally invest in cash, shares and property, both locally and overseas. Initially you may decide to invest in cash only.

To download a sample of our Investment Strategy template, please click on the button below:

Definition

An investment strategy is a detailed financial plan made by the Trustees of an SMSF based on the current and future financial needs of each Member of the Fund. The Fund must pass the Sole Purpose Test and all investments must be made and maintained on an arms-length basis.

Investment Strategy legal requirements

Under the SIS Act a Trustee of an SMSF is solely responsible and directly accountable for the management of fund Members’ benefits. Trustees have a duty to make, carry out, and document decisions on how SMSF assets are invested and to carefully monitor the performance of the investments. This duty involves formulating and implementing an investment strategy.

Most Trustees cite “control of investments” as the prime motivation for setting up their SMSF. As a Trustee, you are required by law to prepare and implement an investment strategy for your SMSF and review it on an ongoing basis.

The investment strategy must take into account every aspect of the SMSF, including:

  • the risk involved in making, holding and realising the SMSF’s investments, and the likely return from these investments, having regard to the SMSF’s objectives and its expected cash flow requirements;
  • the composition of the SMSF’s investments as a whole, including the extent to which the investments are diverse or involve the entity in being exposed to risks from insufficient diversification;
  • the liquidity of the SMSF’s investments, having regard to its expected cash flow requirements, for example: payment of tax, the superannuation surcharge liabilities of the members, lump sum benefits if a member leaves the SMSF, and regular pension payments;
  • the ability of the SMSF to discharge its existing and prospective liabilities.

Investment Objectives, Risk and Diversification

The SMSF may aim to obtain an average yield of say, 6% from all investments. In order to achieve this objective, Trustees should consider the needs of each Member of the Fund. Take into account when each Member is due to retire, your risk profile and your growth targets. If risk levels are different for different Members, consider setting up a separate SMSF.

Risk is the possibility of loss on an investment. There is a strong correlation between risk and return. This means that the Trustees must determine the acceptable level of risk and volatility of the returns in the light of the SMSF’s circumstances.

Diversification of investments may be desirable in order to disperse and manage risk; it also reduces the volatility of the returns on the investments. Diversification means spreading investments over a number of individual assets, classes of assets, countries, or investment managers. It may be difficult to achieve diversification in the early stages when the amount of funds available for investment may be limited.

Property Investments

An SMSF can invest in property locally or overseas. You can also invest in commercial or residential property. Purchases can be outright using cash or using a limited recourse borrowing arrangement. When investing in overseas property, you may have to use a foreign company to facilitate the investment.

If you decide to invest in commercial property with your SMSF, you can acquire a property and pay an arm’s-length rent amount from your business and claim a tax deduction towards funding your own retirement. And remember, personal use of your SMSF residential property investment is not allowed.

Paying Expenses

The Trustees must maintain sufficient liquidity to pay the Fund’s taxes (income, capital gains, GST, PAYG and contributions tax), and must ensure that other expenses, such as the cost of administration, brokers’ fees, stamp duty and legal fees are paid on a timely basis, otherwise the ATO will impose penalties and interest.

Insurance

Trustees should consider the death and disability insurance needs of each Member. From 2013 it is a requirement for Trustees to consider insurance in the SMSF on an annual basis. To take out insurance, Trustees can take an online quote or use a broker. The choice is yours. More details of options available here.

Investment name

Always have all SMSF investments in the name of the SMSF. The Fund is obliged to have title over all the assets it owns. You can’t have an SMSF asset in your own name.

Audits

SMSFs are required to have an annual independent audit.  The auditor will review the Trustees’ investments to ensure that they are consistent with the investment strategy. If the SMSF does not have an investment strategy the auditor will raise this point.

Summary

When setting up a new SMSF we will issue you with an Investment Strategy Template. You can tailor this to your own needs on an ongoing basis.

Download our Sample Investment Strategy

The Tax Office also has a video explaining the importance of having an investment strategy in place when you operate your SMSF. To view the video, please click here.

For other useful documents (e.g. Trustee Declaration and Financial Statements), follow this link.

  • Jay Bhattacharjee

    I have got an opportunity to buy a residential complex in a group. The
    master LLC will be the owner of the residential complex and our LLC will
    have share for it. The return will be distributed to all shared holder (
    LLC ) based on share percentage. I was wondering if this kind of
    Investment comply to the SMSF norms. I read SMSFR 2012/1 but the
    document doesn’t provide any information related to that kind of
    investment. I would appreciate if you could let me know at your earliest
    convenience.

    • superannuationwarehouse

      Jay,

      Our understanding is the SMSF would not own the property directly, but own units in a widely held LLC.

      Even with the underlying investment being a property, the SMSF will not have title over the property. The asset held by the SMSF is shares in an LLC.

      These shares can be held directly by your SMSF, on the proviso the Investment Strategy and Trust Deed allows for this. Your SMSF tick these boxes as these documents were issued by Superannuation Warehouse.

      The second consideration is if the SMSF will purchase these shares directly or utilise loans. If there’s a loan in place, remember to do a bare trust arrangement, as described here:
      http://www.smsfwarehouse.com.au/smsf-investments/property/usa-property/

      Trust this answers your question.

  • Joan Calica

    what are the examples of strategic investors?

    • superannuationwarehouse

      All the investors for this example are SMSF’s. Each SMSF must have an Investment Strategy.

  • Raj

    Hi, I am looking to invest in international share market through renowned portfolio management company. I want to use fund available in SMSF to invest. Can i do that?

    • superannuationwarehouse

      Raj,

      On the basis the Investment Strategy and Deed allows for this, you can proceed. The documents we provide do allow for this.

      In your position as Trustee, you can elect where to invest for the SMSF, either locally or overseas.

      The main criteria, in my view, is capital preservation. Make sure you do not loose any capital of your Fund and take too high a risk.
      Trust this helps
      Hein

      • Raj

        Thanks Hein for the quick response. I am trying to assess what will be the cost associated with the investment strategy i am looking for investment overseas. I have an understanding about the investment on stocks and i am comfortable with the market where i am looking to invest. I am only concerned about the cost.
        What is your role in SMSF? Do you have help in setting up SMSF? What is the cost associated with the SMSF?

        • superannuationwarehouse

          Raj,
          We act as accountant and tax agent for the Funds we set up.
          We set up the SMSF initially and do tax and related documents on an annual basis.
          We are not Financial Advisors or Financial Planners. So you need to decide where the Fund will invest.
          The typical fees the SMSF will pay are operating expenses, like brokerage, the Super Levy the the ATO and tax. The fees we charge is explained here:
          http://www.smsfwarehouse.com.au/smsf-setup/smsf-packages/
          Keep well,

  • Outreach Group

    Cani invest super in cryptocurrency ?

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Superannuation Warehouse is an accounting firm and do not provide financial advice. All information provided has been prepared without taking into account any of the Trustees’ objectives, financial situation or needs. Because of that, Trustees are advised to consider their own circumstances before engaging our services.