Every SMSF is required by law to have a documented investment strategy. Many trustees treat this as a box-ticking exercise, completed once at setup with a generic template and never revisited. That approach is one of the most common issues auditors flag year after year.
What an Investment Strategy Needs to Address
Your fund’s investment strategy needs to set out how the trustees will invest the fund’s assets to achieve the fund’s retirement objectives, having regard to a specific set of factors under the Superannuation Industry (Supervision) Regulations:
- Risk and expected return of the fund’s investments as a whole, not just individual holdings viewed in isolation
- Diversification, or the trustees’ documented reasoning if the fund is deliberately not diversified
- The fund’s ability to pay benefits as members retire, and to meet other costs and liabilities as they fall due
- The liquidity of the fund’s investments relative to expected cash flow needs, particularly once a member starts drawing a pension
- Whether the trustees have considered holding insurance cover for members
What the Sector’s Own Asset Allocation Looks Like
For context, the ATO’s own statistics show that across the SMSF sector as a whole, listed shares represent around 26 per cent of total estimated SMSF assets, with cash and term deposits making up a further 16 per cent, alongside property, unlisted trusts, and other asset classes.
Why a Generic Template Falls Short
A strategy document that simply lists broad asset allocation ranges, without reflecting what the fund actually holds, is a common weak point that auditors are specifically trained to look for. If your fund holds a concentrated position, such as a single commercial property representing the majority of the fund’s assets, the strategy needs to explain why that concentration is appropriate for the fund’s specific circumstances.
A Practical Example of Getting It Right
Consider a fund holding a single commercial property representing 70 per cent of total assets, with the remainder in cash and listed shares. A properly documented strategy explains that the trustees have deliberately chosen this concentration because the property is leased to the member’s own business on a long-term commercial lease, that the fund’s remaining liquid assets are sufficient to cover expected pension payments, and that the trustees have specifically considered, and accepted, the reduced diversification this creates.
When Your Strategy Needs to Be Reviewed
- At least annually, ideally timed alongside your fund’s audit
- Whenever the fund makes a significant new investment
- When a member’s circumstances change, such as approaching retirement or starting a pension
- When the fund’s membership changes
Why This Matters Beyond Compliance
Beyond satisfying the ATO, a properly considered investment strategy is genuinely useful to you as a trustee. It forces trustees to think through liquidity, so the fund can actually pay benefits and expenses when they fall due, and to consider diversification and risk deliberately, rather than by accident or inertia.
How New Wave SMSF Helps
We do not treat your investment strategy as a document to file away after signing. Our financial planning team works with you to build a strategy that actually reflects your fund’s holdings and your retirement goals, and our accounting team ensures it is reviewed as part of your fund’s annual compliance cycle.
Frequently Asked Questions
Is a generic template investment strategy acceptable to the ATO?
Not on its own. The strategy needs to genuinely reflect your fund’s specific holdings, objectives, and circumstances.
Who is responsible for preparing the investment strategy?
The trustees are legally responsible for formulating and giving effect to the fund’s investment strategy, though many work with their financial planner and accountant.
Does my investment strategy need to mention insurance?
Yes, trustees are required to consider whether to hold insurance cover for members as part of formulating the investment strategy.
What happens if my fund does not have an adequate investment strategy?
This is a commonly reported compliance issue that can be flagged by your auditor, though it is usually a straightforward matter to rectify.
Can my SMSF hold a concentrated, undiversified portfolio?
Yes, provided the trustees have genuinely considered diversification and documented their reasoning.
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This article is general information only and does not take into account your personal objectives, financial situation, or needs. It does not constitute financial, tax, or legal advice. Figures referenced are drawn from published ATO statistics and are current as at the date of publication. New Wave Financial Planning Pty Ltd is an Authorised Representative of NWG Financial Services Pty Ltd, AFS Licence No. 538619. Please speak with your New Wave SMSF adviser before acting on any information in this article.