As the one million-plus members of Australia’s 600,000-plus self-managed super funds know, SMSFs must prepare and regularly update an investment strategy.
And the need to have an SMSF investment strategy should be clearly recognised by the thousands of individuals who are beginning to operate a self-managed fund for the first time from the beginning of 2017-18.
Yet what may not be readily recognised is that the fundamental requirements for an SMSF’s investment strategy, as set out in the Superannuation Industry (Supervision) Act, can provide rewarding reading for any investor. This includes those who don’t invest through an SMSF.
Under superannuation law, SMSF trustees are legally required to prepare, implement and regularly review an investment strategy that has regard to the whole circumstances of their fund.
These circumstances include investment risks, likely returns, liquidity, investment diversity, risks of inadequate diversity and ability to pay member benefits. And trustees are required to consider the profile of their members, which would include their individual tolerance to risk.
As specialist superannuation editor Stuart Jones writes in the Thomson Reuters Australian Superannuation Handbook 2016-17: "The most challenging SMSF component for many trustees is establishing and maintaining an appropriate investment strategy for the fund".
To comply with superannuation law, SMSF trustees usually need to prepare an investment policy statement covering the fund’s objectives, how those objectives are going to be achieved (including through its asset allocation) and its investment strategy.
In turn, this should prompt trustees to think hard about the very essence of their funds, their approach to investment and the personal position of each member. It can be something of a soul-searching exercise.
Trustees of the big APRA-regulated super funds are also compelled, of course, to have investment strategies. A critical difference is that individual SMSF trustees are the ones responsible for their funds’ investment strategies.
Yet even if you don’t invest through an SMSF, it is worth giving close attention to the investment strategies that SMSF trustees are required to hold.
This may encourage you to think more deeply about your approach to your super and non-super investments. And it may encourage you to follow the example of many SMSF trustees in seeking specialist advice to create and instigate an investment strategy and an overall personal financial plan.
