All SMSF’s must have an investment strategy and the trustees must consistently review their strategy to ensure it is accurate and covers the relevant areas. So let’s look at what an investment strategy actually is and what it should contain.
An investment strategy sets out the investment objectives of the fund and states the types of investments the fund can make. Specifically the document must address the following areas:
- Risk tolerance and expected return of the fund
- Diversification (investing in a range of assets and asset classes)
- Fund liquidity (how easily the assets can be converted to cash)
- Ability to pay benefits (such as pensions) and other expenses
- Member’s need and circumstances (such as age and retirement needs)
- Consider whether to hold insurance (such as life insurance) for each member
Here is the link to a great ATO video regarding investment strategies:
Remember to also ensure the trustees review their strategy regularly. This is to check that it continues to reflect the purpose and circumstances of your fund and its members. Changes often occur and this should be updated in the document. For example you may wish to invest in cryptocurrencies or commence a borrowing to purchase a property. This may require a change to the asset classes identified in the investment strategy. Alternatively you may decide that insurance is required. This should now be documented.
Although ultimately it is the trustees that must prepare this document, an advisor can assist you to ensure you have addressed the required areas. Get in touch with us here to see if we can help.