An SMSF investment strategy for Australians

We all want to live well in our old age.

To achieve this, many Australians are choosing a self-managed super fund (SMSF) over traditional options.

An SMSF may allow you to take control of your wealth management, reduce tax, and control administration costs.

But understanding the risks, options, and obligations is vital before you decide if an SMSF is right for you.

Here are our tips for creating an SMSF strategy that is robust:

Assess risk and diversification of investments

When you’re in control of every element of your super, there can be a lot to think about.

But the risk level and diversification of your portfolio should top your list of considerations.

The risk of an investment must be balanced against the likely return and how it will help achieve the objectives of your SMSF.

You should also give careful consideration to the level of diversification of your self-managed super fund.

Ensuring adequately diversified investments will reduce exposure to any one particular asset or risk and may be a safer option for your SMSF investment strategy.

Consider different investment options

One of the benefits of an SMSF is it allows you to invest in a broader range of asset classes than a traditional fund.

You can choose from Australian and international shares, residential or commercial property, cash and term deposits, fixed income products, and physical commodities.

Deciding which of these is best for your SMSF is a complex question that will be influenced by your situation and financial goals.

If you want regular income, you may choose to invest in more conservative assets that provide a steady cash flow.

If building wealth is your aim, it’s important to invest in assets that will increase in market value over time.

But if you’re retired, your priority may be protecting your savings with low-risk investment options such as term deposits or bonds that have lower returns but are less volatile.

Whatever you decide, creating a sound investment strategy for your self-managed super fund is one of the smartest ways you can grow your retirement savings.

Follow SMSF investment strategy guidelines

The Australian Taxation Office (ATO) has produced guidelines on self-managed superannuation fund (SMSF) investment strategies to help SMSF trustees and professionals.

Your SMSF investment strategy must detail the personal circumstances of members (such as age, employment status, and retirement needs), how these circumstances influence risk and how investments meet each member’s retirement objectives.

The ATO also requires that an SMSF considers risks, liquidity, and insurance as part of its investment strategy.

Buying property within your SMSF

Unlike traditional super funds, you can include commercial and residential real estate in your SMSF investment strategy – but there are several rules to be aware of.

Residential property purchased through your SMSF cannot be acquired from a related party of an SMSF member or lived in or rented by a fund member. And your self-managed super fund can only purchase your business premises if you pay rent to your SMSF at the market rate.

Lenders will usually allow self-managed super funds to borrow up to 70 – 80 per cent of the property’s value, but they generally require the SMSF to have a company as trustee, rather than as individuals.

And due to the limited recourse nature of SMSF borrowing, lenders are increasingly particular about approving loan applications.

You should also give careful consideration to how a loan may affect your cash flow, particularly if you’re a low-income earner.

Review and update your SMSF investment strategy

An SMSF investment strategy is not something you can just “set and forget”.

When the circumstances of your fund change, or in the event of a market correction, you should re-examine your investment strategy and make necessary adjustments.

Regularly updating your SMSF investment strategy is also a requirement of the superannuation laws.

To ensure you stay on track to achieving your retirement goals, you should update and revise your SMSF strategy annually.

Seek advice on your SMSF investment strategy

Having an SMSF investment strategy that ensures you meet your retirement goals is essential.

LDB’s superannuation experts can assist with a strategy review and provide compliance guidance to ensure your SMSF meets the legislation and the ATO’s expectations.

To speak with one of our trusted superannuation experts, give us a call on (03) 9875 2900 or fill in the contact form below.