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Investment Strategy

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What is an Investment Strategy

Prior to Investing your Super Benefit, it is a requirement under current Super Laws that an SMSF formulate and give effect to an Investment Strategy. An Investment Strategy is a plan for making, holding and realising SMSF Investments that reflects the SMSF's Objectives (eg increasing the value of members' interests). In establishing an Investment Strategy the following steps should be taken into account.

Step 1: Develop Investment Objectives.
Step 2: Develop a strategy to achieve the Investment Objectives. 
Step 3: Monitor the Objective and Strategy with a periodic Investment Review.

Let's consider each step below:

Step1
 

Develop Investment Objectives

The Investment Objective of the SMSF is to maximise member returns having regard to risk and must be in accordance with Trust Deed governing the SMSF's operations. The SMSF Trustee, in setting the Investment Objectives, must take into account the following:

 
 
Risk and return

The risk involved in making, holding and realising Investments and the likely return from the Investments, having regard to the SMSF's objectives and its expected cash flow requirements.

 
 
Diversification

The composition of the SMSF's Investments as a whole, including the extent to which the Investments are diverse or involve the SMSF being exposed to risk from inadequate diversification.

 
 
Liquidity

The liquidity of the SMSF's Investments having regard to its expected cash flow requirements.

 
 
Liabilities

The ability of the SMSF to pay Member Benefits and other liabilities, both current and prospective.

Step2
 

Develop a strategy to achieve Investment Objectives

Once the Trustee has developed the Investment Objectives of the SMSF they will need to develop a strategy to achieve the Investment Objectives. Typically this will involve detailing the Asset Classes that will be considered to achieve the Investment Objectives. Under the standard Investment Strategy provided by ESUPERFUND acceptable Investments include:

Step3
 

Undertake an Annual Investment Review

The SMSF Trustees must review the Investment Objectives of the SMSF annually and at such other times as a significant event occurs which affects the SMSF. This does NOT mean that each individual SMSF Investment must be reviewed. Individual Investments can be overseen on a daily basis (i.e. the sharemarket can change rapidly) and changed at any time that a buy or sell criteria is met. The Investment Review relates to adjustments to the overall structure of the SMSF. For example the SMSF Trustee may decide over time to change the SMSF's asset allocation when moving from working to retirement, or the methodology when choosing asset Investments.

 
 
Investment Strategy is NOT a Financial Plan

An Investment Strategy is not a Financial Plan for a SMSF. For example a plan will provide specific details of the assets a SMSF wish to acquire (eg shares or cash) and the respective percentage allocation to each asset class. This is NOT an Investment Strategy required under current Super Laws, but a Financial Plan. This level of detail is NOT required when formulating the SMSF Investment Strategy.

 
 
Percentage Investment Range

The SMSF Investment Strategy does not need to specify the percentage or percentage range that will be invested in each asset class. Each asset class should be considered on its own Investment merits having regard to an appropriate degree of diversification.

 
 
Single Asset Investment Strategy

Can an SMSF invest 100% of monies in CFDs, in Gold, in one property or one share, say BHP? By law, SMSF trustees must have an investment strategy which has regard to diversification. Investment decisions are a matter for SMSF trustees and it may prudent to seek financial advice.

 
 
Remember Risk and Diversification

Whilst there is no specific prohibition to investing 100% of your super monies in one asset class as detailed above, where such a strategy is adopted, it is important to remember that risk and diversification are important considerations when implementing your SMSF Investment Strategy. A "one asset" strategy may be considered as increasing your Funds Risk Profile and may not be adequately diversified to mitigate Investment Risk. So while this strategy is not specifically prohibited you must carefully detail why it is appropriate for your SMSF if it is adopted.

 
 
Standard Investment Strategy

When you establish an SMSF with ESUPERFUND we will provide an example of an Investment Strategy for your SMSF. You may adopt the Standard Investment Strategy for your SMSF or modify it as you deem necessary. The Standard Investment Strategy is very flexible and in no way restrictive. It does not specify percentage Investment ranges and gives you the flexibility in designing and implementing Investments for your SMSF as you deem appropriate as the SMSF Trustee.

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General Advice Warning

No Advice Express or Implied: The contents of this website are of a general nature only and have not been prepared to take into account any particular investor's objectives, financial situation or particular needs. ESUPERFUND does not provide financial product advice or recommend any financial products either expressly or implied. ESUPERFUND expressly states that it does not recommend, represent as suitable, or endorse any financial product or service available through ESUPERFUND. This applies equally to those financial products which are established for your SMSF when you become a client of ESUPERFUND. Any information provided in relation to any financial product or service available through ESUPERFUND is factual information only about the operation of the account and how data is made available to ESUPERFUND. Where this website refers to a particular financial product then you should obtain a Product Disclosure Statement (PDS) relating to that product and consider the PDS before making any decision about whether to acquire the product. We also recommend that you should seek professional advice (see below) from a financial adviser before making any decision to purchase any financial product referred to on this website. While the sources for the material are considered reliable, responsibility is not accepted for any inaccuracies, errors or omissions.

Seek Professional Advice from a Financial Adviser: ESUPERFUND is a no advice model and does not provide financial, legal or tax advice to clients. We recommend that you seek appropriate professional advice in view of your personal circumstances. A licensed financial adviser will consider your personal situation and make a recommendation suitable to your financial needs. All information detailed on our website is purely factual and is general in nature. Accordingly, you should not rely on it. It should always be remembered that Trustees are legally responsible for all the decisions made even if you obtain advice from a Financial Planner. Whilst a Financial Professional can provide advice and assistance you are ultimately responsible for the Fund.

Fees: Fees relating to operating your SMSF with ESUPERFUND are detailed on our fee page here. When setting up a SMSF it is important to understand that additional fees may apply that must be carefully considered prior to making a decision to setup a SMSF including an ATO Supervisory Levy, Company Trustee Setup Fee (where applicable), and Investment Fees.