Does your SMSF have an investment strategy?

You’re responsible for a Self-Managed Superannuation Fund (SMSF) and your members deserve to know how you will undertake investing their funds for best returns. Or you are a member of a SMSF and you want to understand your SMSF’s direction and methods for investing your contributions.

Under Australian law (Superannuation Industry (Superannuation) Act 1993) a SMSF is required “to formulate, review regularly and give effect to an investment strategy”.

Formulate an Investment Strategy

Preparing an investment strategy means you will want to consider:

• the purpose of the SMSF;
• the members’ individual circumstances;
• the life phases of members (accumulation vs retirement and so on);
• the risks associated with various and diversified investment approaches;
• the pros and cons of asset classes (shares vs property vs cash and so on);
• the investment period/s for different investments;
• the benefits to members of insurance/s;
• the costs associated with investments; and
• how and when your members will receive payment of their returns and/or pensions

You will need to research these aspects of the plan, then construct a methodology for each objective apt for a SMSF and its members. These actions create your investment strategy. Now what?

Regularly Review an Investment Strategy

Once an investment strategy is in existence, over time the strategy will need to be reviewed due to changing – legal, management, member and/or investment – circumstances. Some circumstances might be:

• Fund purpose changes direction (for example, retirement goals of members);
• New member/s join;
• Management team employment changes;
• Structure and performance of investments change;
• Liquidity levels require variation;
• Government legislation updates or reforms must be reflected;
• Market fluctuations warrant growth strategy modification

Reviewing a SMSF’s investment strategy on a regular basis – at least annually according to the ATO – can give a SMSF and its members the best prospect of long-term success.

Insurance within an Investment Strategy

Part of reviewing a SMSF’s investment strategy is considering whether insurance is appropriate for its members and the suitability of any insurance – life, total and permanent disability (TPD), income protection - cover taken.

It is not mandatory to provide insurance but it is obligatory under law to consider insurance and show via supporting documentation the reasons for your decision to insure or not to insure a SMSF’s members. Such consideration and documentation are gauged to ideally protect a SMSF should liabilities be incurred.

Execution of an Investment Strategy

How or whether you act upon an investment strategy is important. You will need to put in to action an investment strategy not only to satisfy the existence of a SMSF, but to fulfil the purpose of a SMSF and meet its members’ retirement needs. This can only be achieved with a plan, regular reviews, consideration of insurance and making decisions in line with the methods of investment detailed within the investment strategy.

The ATO will use a SMSF’s investment strategy to ascertain the viability of a SMSF and may suggest specific alterations in its annual audit of a SMSF.

Engaging the services of a financial adviser to execute on a SMSF’s investment and insurance strategies could help reassure its members, enabling them to get on with their lives knowing that their superannuation funds are appropriately invested and that their insurance policies are in place.

As financial advisers specialising in SMSF advice we at YML Group strongly encourage SMSF members to contact us to discuss their retirement financial objectives and how we can assist with achieving them.

How can YML help?

Talk to our YML Super Solutions Team today to see how YML Group can assist you with your SMSF investment strategy. Contact us on (02) 8383 4400, or by visiting the Contact Us page on our website.