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Self-Managed Super Funds: Why It is Important to Have a Sound SMSF Investment Strategy

A sound SMSF investment strategy can go a long way towards providing peace of mind and a prosperous retirement.

Many Australians are taking advantage of the opportunity to set up their own SMSFs. However, this can be a double-edged sword. While a brilliantly-maximised SMSF can provide a prosperous lifestyle during retirement, mistakes in strategy can cost thousands of dollars. Due to the highly-regulated nature of SMSFs, it is our belief that one should always seek the help of professionals who are trained in the regulations and in maximising investments such as an SMSF.

Have a Sound SMSF Investment Strategy

To manage an SMSF, you must register as a Trustee. One of your mandatory duties as an SMSF trustee is to formulate and document an investment strategy. This is a financial plan that takes into consideration the current and future needs of every SMSF member, even if you are the only member.

Every SMSF is required to pass a test from the ATO called a “Sole Purpose Test,” which requires all investments “to have the sole purpose of providing retirement benefits or death benefits to the Beneficiaries of the SMSF.”

One of the most-cited benefits of an SMSF is having control of your investments. The SIS Act requires all trustees to formulate, execute and document all investment decisions and to monitor their performance on an ongoing basis. The SMSF investment strategy is an essential and mandatory part of this process.

The Investment Strategy Dictates Investment Results

Since all investments in the SMSF must be invested according to the investment strategy, the strategy must be sound in order to produce optimum results. All factors must be considered in an SMSF investment strategy. This includes assessing risk against possible return on investment.

It also includes the composition and diversity of the investments and maintaining a degree of liquidity within the fund. The SMSF must also have the ability to discharge any existing liabilities.

Putting It All Together

A sound SMSF investment strategy will contain diverse investments such as property, shares and cash. The SMSF must be able to pay expenses and should be protected by adequate insurance. It must also be able to pass an independent audit conducted on an annual basis.

To learn more, call our financial planners in Perth: (08) 6462 0888.