Investment Strategy

All SMSF's must maintain a valid investment strategy. An additional investment strategy is required for Reserves.

The Trustees are responsible for the investment strategy of the fund.  It is necessary for an investment strategy to be formulated for the fund and provided to us for the files.  The auditor will require the document at audit time.  You should ensure that all investments made by the fund are made in accordance with the investment strategy. 

Investment Strategy Guidelines

An Investment Strategy should take into account:

• the risks involved in making, holding and realising investments

• the likely return from investments

• the diversity of investments (this is taken to mean basic diversity over a number of investments rather than necessarily across a number of different asset sectors).

• the liquidity and cash flow of the investments

• the time the members have until they retire

• the fund’s cash flow requirements

• the investment risk tolerance of the members

Once formulated, the investment strategy should be signed off by the Trustees and reviewed regularly.  All investment decisions and transactions must be governed by the strategy. There is no “standard” correct investment strategy.  The following sample may be of use however.

Disclaimer: This example merely provides a suggested wording included in a typical investment strategy.  This does not purport to be financial advice and no person should adopt the information below without first seeking expert assistance from a financial adviser.

CASH – x%

As current returns on cash investments are significantly below the returns available upon other asset classes it has been considered unnecessary to maintain cash reserves beyond this level.  Sufficient cash is expected to be generated from other asset classes to meet the Fund’s ongoing cash flow requirements.

FIXED INTEREST – x%

The Trustees have considered the historical and recent returns of the fixed interest market.  The current returns on fixed interest investments are relatively below the returns available upon certain other asset classes yet they are sufficiently liquid to place a portion of the Fund’s investments without subjecting those assets to too much risk.  Accordingly, the Trustees propose to retain an investment by way of fixed interest of around x%.

PROPERTY – x%

The Trustees have considered the historical and recent returns of the property market and in particular residential, industrial and commercial sectors of the property market.  Accordingly the Trustees propose to make and maintain in the member’s portfolio an investment by way of direct and indirect property of $x.

AUSTRALIAN EQUITIES – x%

Taking into account recent and historical returns on Australian equities over the past five years the Trustees propose to make and maintain investments, either directly or indirectly, in Australian equities of x%.  Within the asset allocation for Australian equities the Trustees further propose to diversify amongst companies that operate across the various sectors of the Australian economy including industrials, banks, technology and primary industry.

Furthermore the investment by the Trustees within Australian equities provide the Trustees with the opportunity to be in receipt of franked dividends payable by Australian companies.  The receipt of franking credits allows the Trustees to access valuable tax credits which may be used to offset the Fund’s tax liabilities thereby maximising the returns on investments held by the Trustees.

INTERNATIONAL EQUITIES – x%

Taking into account the recent and historical returns on international equities over the past five years the Trustees propose to make and maintain investments, either directly or indirectly, in international equities of x%.  The strategy of investing in international equities acts to further reduce the risk of having inadequate diversification within the asset class known as equities.

FURTHER NOTES:

Outline why this strategy is prudent.

Consider life or disability insurance

State a % investment range if you wish

Provide performance bench marks of each asset class, if available.

Attach any supporting information, if available, including for instance any investment analysis and any investment advice.