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Building an SMSF Investment StrategyA step-by-step guide to putting together an Investment Strategy for a Self Managed Super Fund

By Chris Strano

http://www.superguy.com.au/smsf-investment-strategy/

2http://www.superguy.com.au/smsf-investment-strategy/

• An SMSF Investment Strategy is a legislative requirement for every Self Managed Superannuation Fund (SMSF).

• The ‘generic’ Investment Strategy often given to you upon establishing your SMSF is often not worth the paper it’s written on

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What is an Investment Strategy?

• As a Trustee of a SMSF, you are required to formulate, regularly review and give effect to an Investment Strategy for the SMSF

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What is an Investment Strategy?

• The Investment Strategy must have regard to:• The risks of making, holding and realising and likely return

from investments• Composition and diversity of the investments• Liquidity of investments• Ability to value assets• Tax consequences of assets• Costs in maintaining assets

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What does an Investment Strategy look like?

• There is no set structure for an SMSF Investment Strategy, provided it covers off on the required information.

• The following pages are a guide that may assist in creating an Investment Strategy for your SMSF.

• This guide is not exhaustive, it is merely intended as an outline of what could be included.

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Guide to an SMSF Investment Strategy

PAGE 1 – TITLE PAGE

• Name of the SMSF, title of the document, date.• E.g. Investment Strategy for the Super Guy

Superannuation Fund. 1 July 2014.

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Guide to an SMSF Investment Strategy

PAGE 2 – RISKS INVOLVED

• Transactional risks, management risks, volatility, gearing/borrowing, liquidity, asset specific risks, etc.

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Guide to an SMSF Investment Strategy

PAGE 3 – COMPOSITION OF THE INVESTMENTS• Include % allocation to each type of investment and/or

asset class compared to what the ‘ideal allocation should look like. Maybe use a table to illustrate. E.g.

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Guide to an SMSF Investment Strategy

PAGE 4 – LIQUIDITY AND CASHFLOW

• Discuss the ability and timeframe for assets to be bought and sold.

• Include situation where assets may need to be sold on short notice.

• How do illiquid assets affect the SMSF?

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Guide to an SMSF Investment Strategy

PAGE 5 – ASSET VALUATIONS

• Outline how assets or classes of assets will be valued and frequency.

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Guide to an SMSF Investment Strategy

PAGE 6 – DISCHARGE LIABILITIES

• Discuss how SMSF will meet commitments such as fees, costs, pension payments, taxes, loan repayments, etc.

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Guide to an SMSF Investment Strategy

PAGE 7 – TAX CONSEQUENCES

• Explain how assets or classes of assets will incur taxes and how they will be met.

• Include provision for Income Tax and Capital Gains Tax

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Guide to an SMSF Investment Strategy

PAGE 8 – INVESTMENT COSTS

• What costs are associated with the SMSF investments?• Brokerage, stamp duty, investment fee, property fees

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Guide to an SMSF Investment Strategy

PAGE 9 – OTHER MATTERS

• Any other matters that you, as a trustee, feel are relevant to be included in an SMSF Investment Strategy

• Think about: how often will it be reviewed• What will returns be compared against• Is there a unique asset of the fund that needs further explanation or

justification?• Will the SMSF borrow money or invest in derivatives?

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Guide to an SMSF Investment Strategy

PAGE 10 – SIGN OFF

• Final page should include a sign off by Trustees/Investment Manager/Director of Corporate Trustee – whoever is responsible

• Also include date and where the meeting or review took place

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Reviewing the SMSF

• No legislative timeframe on how often the SMSF Investment Strategy needs to be reviewed.

• Should be determined by the circumstances of the SMSF • Age of members,• Levels of contributions,• Life stage of members,• Types of assets,• Etc.

17Chris Strano

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