There are two key documents that govern the “powers” of a Self Managed Super Fund (‘SMSF’) – they are the Trust Deed and the Investment Strategy. The Investment Strategy will document what you plan to invest in to secure your retirement as well as the asset allocation.
The reason an investment strategy is required and needs to be reviewed regularly is that personal circumstances change and so do markets. The Investment strategy provides members/ Trustees a tool to document and implement their strategies and the asset allocation needed to achieve your objectives.
The Investment Strategy should be implemented at the outset – that is when you establish your fund, the Investment Strategy should be documented and signed off by all members of the fund. This strategy should be “regularly” reviewed.
So what does “regular” mean? At least annually or where circumstances change that require a documented review of the strategy. For example, when you establish the fund, you plan to invest 20% in cash and 80% in shares – this is documented and the resolution is signed by the members. Two years later, you decide to enter the property market using a limited recourse borrowing. This will significantly change your investment strategy and the strategy should be reviewed and documented. This will then be signed off by the members and provided to the SMSF Administrator / Auditor. The Investment Strategy will be require to include a consideration of insurance cover inside the SMSF.
What does the ATO require?
The ATO has provided detailed guidance on the requirements of an Investment Strategy. The ATO clearly details the following requirements:
- Diversification of asset classes
- Liquidity of fund assets
- Members needs and circumstances
- Whether to hold insurance cover inside the SMSF
Factors to consider
A popular investment strategy in the last decade is borrowing to invest in property. In order to borrow your Trust Deed will require the necessary powers as well as a clearly documented investment strategy. Generally a lender will not require a copy of the strategy, however may require a sign off by a financial advisor that you have a documented investment strategy in place. Further the SMSF auditor will require a copy of the investment strategy
From 1 July 2013, the Investment Strategy must consider insurance. That is – even if you decide not to take out insurance, this must be considered and documented in the investment strategy.
If you plan to invest in precious metals, bitcoin – this should be specifically included in the investment strategy. For precious metals – these cannot be stored in a personal residence and should be stored in an external vault and be insured. For bitcoin, asset allocation should be considered and documented.
When setting up and running an SMSF, you are required to take the time and effort to plan your strategy for your retirement. Therefore, your decisions must be documented and reviewed on a regular basis.
Download a copy of our free investment strategy template here.
Please note this article is for information purposes only and does not constitute financial product or legal advice. The content has been prepared without taking account of the objectives, financial situation or needs of a particular individual and does not constitute financial product advice
Ivan Filipovic is authorised through Dover Financial Advisers Pty Ltd – Australian Financial Services Licensee -License No. 30748 – Dover Authorised Representative Number 1244358 – Redwood Wealth Pty Ltd – Dover Corporate Authorised Representative Number 1244359
Ivan Filipovic is a leading Specialist Superannuation and Property Advisor with Redwood. Ivan has almost 20 years experience providing a range of services across all sectors of Self Managed Superannuation, Property and Finance with an emphasis on long term wealth strategies. Ivan has been educating and coaching investors and has built a successful property portfolio with a number of positive geared properties across Australia. Ivan provides detailed strategies at https://redwoodadvisory.com.au/. Ivan is a Chartered Accountant, ASIC registered auditor, Mortgage Broker and Licensed Property Professional.