An investment strategy is fundamental when it comes to self-managed super funds. Not only is having one a statutory requirement, but it also helps SMSF trustees know what to invest in to meet the fund’s investment goal.
Above all, an SMSF investment strategy must be designed to help trustees reach their retirement goal.
To do this, the strategy must outline the fund’s objectives. Every fund’s objective will be different and should reflect the circumstances of each fund member. For example, it must take into account the age and when each member plans to retire, existing assets inside and outside of super, each member’s current and future salary and ability to contribute to the fund. Importantly, it must also factor the ability of the fund’s assets to be sold within a specific time frame.
Taking into account the risk profile of each fund member will help the strategy determine what the fund invests in. In cases where the risk profile of each member differs, individual asset pools should be created to reflect individual members’ risk preferences.
SMSF strategies need to be reviewed regularly, especially during important life events, like when a member enters retirement, suffers from an illness, goes through a divorce or passes away. These events can have a substantial effect on how a fund operates e.g. if a member dies, a fund’s asset allocation may need to change so that the fund holds fewer high-risk assets.
While there is no such thing as a ‘one size fits all approach’ when it comes to an SMSF’s investment strategy, it is essential for a strategy to consider the elements such as the ones discussed to ensure the fund complies with regulations and meets member needs in retirement.