And how to keep it ATO Compliant

An SMSF investment strategy is essentially your plan for how the fund will achieve its sole purpose: providing retirement benefits for its members. It’s a document that outlines:

• The Fund’s Goals: What you aim to achieve through your investments.

• Risk Management: The level of risk your fund is willing to accept and how it’s mitigated.

• Diversification: How you’ll spread investments across asset classes to avoid over-reliance on any single investment.

• Liquidity Needs: Ensuring the fund can meet its obligations, like paying pensions or covering expenses.

• Insurance for Members: Whether the fund provides appropriate insurance cover for its members.

Why Is It Important?

Legal Compliance
Under the Superannuation Industry (Supervision) Act 1993, SMSF trustees must prepare and implement an investment strategy that is reviewed regularly. Failing to do so can result in penalties from the ATO.

Tailored to Members’ Needs
An SMSF isn’t a one-size-fits-all solution. A clear investment strategy ensures your fund is aligned with the specific financial goals, risk tolerances, and life stages of its members.

Guiding Decisions
Your investment strategy serves as a roadmap for decision-making. It helps avoid impulsive or emotionally-driven investment choices that might not serve the long-term interests of the fund.

Risk Mitigation:
A well-thought-out strategy ensures you’re considering diversification and other risk management principles to protect the fund’s assets.

How Often Should It Be Reviewed?

The ATO expects SMSF trustees to review their investment strategy regularly. While there’s no set timeframe, you should review it:

• At Least Annually: An annual review is a good practice to ensure your strategy is still relevant.

• After Significant Events: Major life changes like a member retiring, a new member joining, or a change in financial markets should trigger a review.

• When Making Big Investments: If you’re considering investing a large portion of the fund’s assets into a single asset class or investment, review the strategy to ensure it aligns with the fund’s risk tolerance and diversification goals.

Why Does the ATO Care?

The ATO has good reasons to scrutinise SMSF investment strategies:

Ensuring Proper Governance:
SMSFs are entrusted with significant tax concessions, so the ATO wants to ensure trustees are fulfilling their duties responsibly.

Preventing Over-Concentration Risk:
The ATO often flags funds with significant investments in a single asset class (e.g., property or cryptocurrency) or related party loans. An updated strategy shows you’ve considered the risks.

Compliance with Sole Purpose Test:
The ATO wants to ensure SMSFs are only being used to generate retirement benefits, not personal benefits for members before retirement.

Minimising Member Disputes:
A clear investment strategy reduces the likelihood of disagreements among members, especially in family-run SMSFs.

What Should Your Strategy Include?

When preparing or reviewing your investment strategy, it’s essential to cover:

• The fund’s objectives (e.g., income generation, capital growth).

• The mix of asset classes and their expected returns.

• The risks associated with each asset class.

• The liquidity requirements of the fund.

• Any insurance needs of members.

Remember, your strategy doesn’t have to be overly complex, but it must reflect the specific circumstances of your fund and its members.

How SMSFAI Can Help

Crafting and maintaining a compliant investment strategy can feel daunting, but it doesn’t have to be. At SMSFAI, we specialise in simplifying SMSF administration. Our expert team can guide you in developing a robust investment strategy, ensuring it meets ATO requirements and reflects the unique goals of your fund.

Final Thoughts

An SMSF investment strategy isn’t just a box-ticking exercise—it’s the foundation of your fund’s success. By taking the time to create, review, and adjust your strategy regularly, you’ll not only stay on the right side of the ATO but also ensure your SMSF delivers the retirement benefits you’ve worked hard to achieve.

Ready to ensure your SMSF strategy is on point? Let SMSFAI show you how easy it can be.