top of page
  • Matt Heighway

Common Mistakes in SMSF Investment Strategies: Are You Making These 5 Errors?


Man tearing up a document

 

Your SMSF Investment Strategy is the next most important reference document after your SMSF Trust Deed.

 

It sets out your investment objectives and your approach to achieving them. It should guide your investment decisions and be updated regularly to reflect any changes to your risk profile, circumstances and investments.

 

Being such an important document, the legislation governing it is specific in its requirements.  Let’s take a look at some examples of what you can get wrong with your SMSF Investment Strategy with tips to help you get it right:

 

You don't adequately document your Investment Strategy

 

Your SMSF Auditor is required to check that your Investment Strategy meets the legislative requirements. It is not a matter of just writing up something that you consider summarises your approach to investing your SMSF nest egg. You literally need to read the legislation and make sure that you cover off all the aspects required (because that is what your SMSF Auditor is doing). 


 You do not consider the personal details and circumstances of each SMSF Member including their risk profile

 

SMSF Trustees and members are typically the same people, so it makes sense to consider each member’s details, circumstances and risk profile when determining your SMSF Investment Strategy. The Australian Taxation Office (ATO) as the Regulator of SMSFs, expects this information to underpin your decisions for the types of investments to hold, the level of liquidity that is appropriate, how you will diversify (or not) and if you will hold insurance (or not).


 

You do not regularly review your Investment Strategy

 

The legislation governing an SMSF Investment Strategy not only requires it to be documented but also requires that it is “regularly reviewed”. One of the reasons for this requirement is to try to make the SMSF Trustee actually use their strategy as an active tool to guide their investment decisions, rather than something they document and then file away never to be referred to again.

 

In our experience, each year the Auditor will want to see that the Investment Strategy is updated, or a minute is signed to affirm that the existing strategy has been reviewed and that no changes are required.

 

You do not consider insurance

 

Other types of superannuation funds will usually have insurance options (like Life Insurance) built into the membership. This is not a feature of membership of an SMSF and so it is up to the SMSF Trustees to decide whether to implement insurance.

Therefore, when a member rolls out of another type of superannuation fund to an SMSF it is possible that they lose insurance benefits. To address this, the legislation requires SMSF Trustees to consider insurance for their members and to document this decision.

 

You have a lack of diversification and do not properly document your reasons why

 

Borrowing to investment in property is a popular SMSF strategy that can result in a lack of diversification within the SMSF. The ATO requires Trustees to document their reasons why they consider that this lack of diversification is acceptable. Not doing so, will have your Auditor requesting an appendix be added to your Investment Strategy to document this or to redo the strategy entirely.


Tips for getting your SMSF Investment Strategy in Order


TIP 1 – To save time getting it right, use an Investment Strategy template that covers off all the legislative requirements.


TIP 2 – Make sure your Investment Strategy template prompts you to consider each SMSF Member’s personal details, circumstances and risk profile


TIP 3 – Use a template that is set up to be easily completed and can be re-used for future updates


TIP 4 – you should ensure that the Investment Strategy you select includes a specific section on Insurance

 

TIP 5 – to avoid the rework, choose an Investment Strategy template that helps you easily document the reasons for not diversifying


At Lifetime SMSF we are passionate about your retirement. We know that the journey to retirement determines the quality of your retirement outcomes and we help Australians maximise these outcomes through Best Practice SMSF practices that encourage seamless and simple ongoing management of your SMSF. With over 4o years experience in the SMSF Industry we deliver industry best SMSF Accounting, Taxation and technical support services to Australians that want the best for their SMSF journey and retirement. With hand-picked industry partners we assure our clients that their growth and protection are our only focus. Get your SMSF Accounting in order here 



5 views0 comments

Comments


bottom of page