SMSF investment strategy health checklist

All good SMSF trustees know they need an investment strategy; after all, it’s part of the requirements of setting up an SMSF. But how comprehensive is yours? Is it just a couple of handwritten paragraphs on a piece of paper?

If it is, it might be time to type something up that starts with the names and ages of all the members, along with their retirement objectives and whether they are in pension or accumulation phase. There’s a lot more that needs to be in there as well, as the following points highlight. 

2. Is it up to date and do you review it regularly?

When was the last time you looked at or considered the investment strategy of your SMSF? Has it been a set-and-forget strategy? Do you just ok the same strategy every year at your annual review? Even if your fund has been performing well you need to consider whether your investment strategy still meets your needs. You might be a lot closer to retirement now than when you established your fund and need to take a more conservative approach to investments.

Alternatively, if you have plenty of time before retirement you may want to consider a more growth-oriented approach. An investment strategy is something the ATO wants reviewed at least annually and a half-yearly once over is a good idea for responsible trustees. Reviews should be scheduled in the investment strategy document.

3. Is your investment strategy appropriately diversified?

The ATO warns that while you can choose to invest all your retirement savings in one asset or asset class, “risks such as return, volatility and liquidity can be minimised if you invest in a variety of assets.”

If you do decide to invest in just one or two asset classes, you must be aware of the concentration risk involved. Your investment strategy needs to state you understand the risk and how you think the investment will meet your fund’s investment objectives. It also needs to explain why you think investing in that way is in the best retirement interests of members.

4. Do you need to rebalance?

Even if you are reasonably happy with your asset allocation, you may need to balance your investments as a result of market movements. If one of your investments has had a very good year, that investment may now account for a much larger proportion of your portfolio than you originally stipulated in your asset allocation.

If you want to maintain your stipulated asset allocation, you will need to sell down some of that asset and reallocate funds to other investments. Alternatively, you can amend your target asset allocation but you will need to explain why.

5. Are all investments allowed under your fund’s trust deed?

If you have recently invested in, or are considering an investment in, a property for your SMSF, or another new type of investment, you need to confirm that your trust deed allows for such investments. Some trust deeds, particularly off-the-shelf ones, may not. As a trust deed is a legal document, any amendments need to be made by somebody competent to do so, such as a solicitor.

6. How long since you considered insurance needs of members?

Investment strategies also need to consider the insurance coverage of members and include a statement that explains why the fund has taken out insurance for members or why the trustees do not think they need to do that. For example, fund members may have sufficient insurance outside the fund.

As we age and our needs grow and change, so do our insurance requirements. It’s important to consider if your cover is enough every time you review other aspects of your investment strategy, ideally every six months.

7. Have you minuted any changes?

If you make some changes to your investment strategy after working through out checklist, it’s very important that you make a note of it in a trustee minute. This can be relatively simple to document but it is important to have the change, and why the change was made, in writing and on record.

8. Is it filed appropriately?

Your investment strategy document is as important as your fund’s trust deed and should be filed with it. If it is kept with your accountant or another professional, it is very important that you also keep a copy of both documents so you can locate them easily. These documents need to be audited annually as part of your annual review and any suggestions or recommendations from your auditor need to be acted upon. 

The bottom line

We hope this checklist helps you review your investment strategy. If you do make changes as a result of this checklist, don’t forget to document them in a trustee minute.