When setting up and running a SMSF, trustees take full responsibility for managing the fund’s assets and ensuring compliance with superannuation law. One of the most important requirements is having a well-considered SMSF investment strategy, a written plan that guides how the fund will invest to meet members’ retirement objectives.
The Australian Taxation Office (ATO) expects every SMSF to have an investment strategy that is appropriate for the fund’s circumstances and regularly reviewed. It’s not a one-off document prepared at setup, it’s a living plan that should evolve with your fund.
Why a SMSF Investment Strategy Matters
The purpose of a SMSF is to build retirement savings for its members. To achieve this, trustees need a clear framework for investment decisions that balances risk, return, liquidity and diversification. The investment strategy does exactly that.
Under Regulation 4.09 of the Superannuation Industry (Supervision) Regulations 1994 (SISR), trustees must prepare and implement an investment strategy that:
- Reflects the fund’s objectives and members’ circumstances.
- Considers the level of investment risk appropriate for each asset class.
- Ensures diversification to manage exposure to market fluctuations.
- Takes into account the fund’s ability to pay benefits and meet expenses as they fall due.
- Considers whether to hold insurance for one or more members of the fund.
This helps trustees make consistent, rational decisions, and gives auditors and regulators confidence that the fund is being managed prudently.
The ATO’s View on Investment Strategy Compliance
The ATO’s SMSF investment strategy guidelines emphasise that trustees must not only prepare an investment strategy but also demonstrate that it is being followed and reviewed. The strategy should align with the fund’s actual investments, and any major changes to the portfolio should be reflected in an updated strategy.
If the investments held by the fund differ significantly from what is documented, or if the strategy hasn’t been reviewed for several years, it may raise compliance concerns during audit. In some cases, an auditor may report the issue to the ATO as a contravention.
Regularly reviewing the investment strategy ensures that it continues to suit the fund’s objectives and that trustees can justify their investment choices if questioned.
When to Review or Update Your SMSF Investment Strategy
The ATO expects trustees to review the investment strategy at least annually and whenever the fund’s circumstances change. Common reasons to review include:
- Changes to asset mix or diversification – For example, a shift toward property or higher-risk assets may affect liquidity or balance within the fund.
- Investment in new or complex assets – Such as unlisted investments, cryptocurrencies or private companies, which may require additional explanation and monitoring.
- Market or economic changes – Events such as market corrections, inflationary periods or political shifts can impact the fund’s performance and risk tolerance.
- Changes to membership – Adding or removing members can alter the fund’s investment objectives and time horizon.
- Starting or ceasing pensions – Moving from accumulation to pension phase affects liquidity requirements and asset allocation.
- Borrowing arrangements – Entering into or repaying a limited recourse borrowing arrangement requires an updated strategy to document the fund’s approach to leverage.
- Insurance updates – Trustees must regularly consider whether insurance cover remains appropriate for each member.
Documenting the reasons for review and any resulting updates helps demonstrate compliance and good governance.
Considering Borrowing in a SMSF
Borrowing can be part of an SMSF investment strategy, but it comes with specific legal restrictions. Under section 67A of the Superannuation Industry (Supervision) Act 1993 (SIS Act), a SMSF can borrow only through a limited recourse borrowing arrangement (LRBA), where the lender’s rights are limited to the single asset purchased with the loan.
Borrowing can allow a fund to acquire property or other growth assets sooner, potentially enhancing returns. However, it also introduces leverage-related risks, such as exposure to market downturns or liquidity pressure if loan repayments must be made from cash flow.
The investment strategy should clearly outline:
- Whether the fund is permitted to borrow.
- The rationale for using leverage.
- The expected benefits and potential risks.
- How the fund will manage repayments and maintain liquidity.
For further guidance, the ATO provides information on borrowing arrangements for SMSFs.
Member Insurance – An Often-Overlooked Requirement
Insurance is another key element of a compliant investment strategy. Trustees must consider whether to hold insurance for one or more members of the fund. This could include life, total and permanent disability (TPD), or income protection cover.
There is no obligation to take out insurance within the fund, but trustees must formally consider and document their decision. Factors to take into account include:
- Members’ ages, family circumstances and existing cover outside the fund.
- The potential impact of a member’s death or disability on the fund’s ability to pay benefits.
- The cost of premiums relative to the fund’s assets and cash flow.
If insurance is held, details of the policies should be recorded in the fund’s records and reviewed annually. If the decision is not to hold insurance, trustees should document the reasoning, for example, members may already have sufficient cover through an employer fund or personal policy.
The ATO and auditors will look for evidence that insurance considerations have been addressed as part of the fund’s investment strategy.
How a Strong Investment Strategy Supports Long-Term Results
Beyond compliance, a well-structured investment strategy helps the fund stay focused on long-term goals. It allows trustees to make informed decisions and respond to changes with discipline rather than emotion.
It also improves transparency among members, ensuring everyone understands how their retirement savings are being managed. For funds with multiple members, such as couples or family funds, this clarity helps avoid misunderstandings and builds trust.
Regular reviews of the strategy also support smoother audits and can reduce administrative stress at year-end, as documentation is already in order.
If you are preparing to set up your fund, understanding how an investment strategy fits into the process can help. Learn more about the steps involved in SMSF setup and what’s required before your fund begins investing.
Key Takeaways
- Every SMSF must have a documented investment strategy that meets ATO and SIS Act requirements.
- The strategy should consider diversification, risk, liquidity, and insurance.
- It must be reviewed regularly and updated whenever the fund’s circumstances change.
- Borrowing and insurance decisions should be clearly documented.
- Keeping accurate records and seeking professional help from a licenced financial adviser supports compliance and protects your fund’s long-term success.
