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Trustees of self-managed superannuation funds (SMSFs) are responsible for making all investment decisions and ensuring the fund remains compliant with Australian tax and superannuation law.
As such, the Australian Taxation Office (ATO) requires every SMSF to have a documented investment strategy that is regularly reviewed.
The following guide outlines core considerations that can help trustees build and maintain a resilient SMSF investment strategy. It is general information only and should not be treated as personal financial advice.
1. Understand the rules before you invest
Several key rules shape what an SMSF can and cannot do:
The sole purpose test
An SMSF is required to be maintained solely for providing retirement benefits to members, or benefits to dependents if a member passes away. Investments should not provide immediate personal or financial benefits to members outside this purpose.
Arms-length dealings
Every investment and transaction should be conducted on commercial terms. The fund cannot provide discounted deals or preferential arrangements to members, their relatives, or related entities.
Restrictions on in-house assets and related-party transactions
There are strict limits on investments in related parties or related trusts, as well as rules preventing SMSFs from lending money to members or relatives.
These legal requirements shape how trustees approach investments, and all should be considered when forming a strategy.
2. Clarify your SMSF's objectives
An SMSF investment strategy begins with clear objectives. The ATO expects these objectives to be documented and reviewed periodically.
Each SMSF is different depending on individual goals. A fund with younger members may focus on long-term capital growth, while a fund with members approaching retirement may prioritise stability and income.
Some members may have substantial assets outside super, while others rely heavily on their SMSF balances.
When setting objectives, trustees may consider:
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The ages and risk profiles of each member
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Years left until retirement
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Whether members are in the accumulation or retirement (pension) phase
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Members' financial resources outside the SMSF
Objectives might be phrased in broad terms - for example, aiming for long-term growth that outpaces inflation, or maintaining enough liquidity to pay benefits.
3. Determine your asset allocation and diversification approach
Asset allocation is one of the most important parts of an SMSF investment strategy because it determines how the fund's money is spread across asset classes such as shares, property, cash, fixed interest, and alternatives.
Many SMSFs choose to outline target ranges for each asset class. For example, 30-50% in Australian shares, 20-40% in fixed interest, or 10-20% in international shares. These ranges help guide decision-making and demonstrate to the ATO how the fund intends to manage investment risk.
Trustees should consider whether the fund has enough liquid assets to meet ongoing expenses, tax obligations, and pension payments, especially as members transition into retirement.
Take note: Diversification matters.
The ATO expects trustees to consider diversification when shaping their strategy. SMSFs that are heavily concentrated in a single asset may face higher risks if unexpected events occur.
4. Assess risk, liquidity and insurance needs
Another requirement of the SMSF investment strategy is addressing risk and how the fund intends to manage it.
Risk tolerance vs risk capacity
Risk tolerance refers to how comfortable the members feel with market ups and downs, while risk capacity refers to their ability to recover from losses. Younger members may be able to take on higher volatility, while members nearing retirement may prioritise stable income.
Liquidity and cash-flow planning
SMSFs need cash to cover expenses such as accounting fees, the ATO supervisory levy, and investment costs. Funds in pension phase must also meet minimum pension payment requirements each year.
A strategy that relies too heavily on illiquid assets may create challenges if the fund needs to sell investments quickly.
Insurance considerations
Trustees are required to consider whether members should hold insurance such as life, total and permanent disability (TPD), or income protection through the SMSF. The law does not require members to take out insurance, but it does require trustees to document that the issue has been considered.
5. Document the strategy and review it regularly
Once trustees have clarified their objectives, asset allocation, risk approach, and liquidity needs, the next step is documenting the SMSF investment strategy. This document should clearly address:
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The fund's investment objectives
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How the fund will invest to achieve those objectives
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Diversification
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Liquidity and cash-flow planning
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The ability of the fund to pay benefits when required
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Whether insurance for members has been considered
Auditors will review the strategy each year to ensure the fund's actual investments are consistent with the documented approach. If the portfolio drifts outside the target ranges, trustees should either adjust the investments or update the strategy to reflect the new direction.
The ATO also expects trustees to review their investment strategy regularly. This can occur annually, but also whenever a significant event happens, such as:
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A member joining or leaving the fund
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A member starting a pension
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A major market shift
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A substantial change in contributions or withdrawals
Building a strategy that adapts as your SMSF evolves
While the fundamentals of a strong strategy are relatively consistent (clear objectives, diversification, liquidity planning and regular reviews), each fund's circumstances will evolve over time.
Understanding the rules and revisiting the strategy when necessary can help trustees ensure the SMSF remains well-positioned to meet its long-term goals.
If your SMSF strategy includes investing in property, loans.com.au offers SMSF Residential and SMSF Commercial loan solutions to help you put your plans into action. Book your free consultation with one of our SMSF lending experts today.
Disclaimer: This article provides general information only. Trustees should check the latest ATO guidelines and consider seeking professional advice before making decisions that affect their SMSF.
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