A guide to SMSF investment strategies
Denise Raward
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- An SMSF investment strategy is a legal requirement that outlines how the fund will invest and support members' retirement goals.
- The ATO expects investment strategies to address risk, diversification, liquidity, liabilities, and insurance considerations.
- Trustees should review their investment strategy regularly and whenever significant events occur.
- Failing to maintain or regularly review an investment strategy may result in compliance breaches.
Many Australians choose to establish a self-managed superannuation fund (SMSF) to take advantage of the flexibility on how their money is invested.
But it's not the Wild West – every SMSF is required to have a written investment strategy outlining how the fund will invest and support members' retirement goals.
Here's what an SMSF investment strategy means in the eyes of the Australian Taxation Office (ATO), and how trustees can devise one to manage their fund's investment goals.
What is an SMSF investment strategy
An SMSF investment strategy is a written plan that sets out how a self-managed super fund will invest its assets to achieve the retirement objectives of its members.
While you can in fact 'self-manage' your super and choose what you invest in, it must be properly outlined in your fund's investment strategy. This legally required document has to set out why and how the fund has chosen its investments, and address how these investments are going to meet members' retirement goals.
What needs to be included in an SMSF investment strategy
According to the ATO, the investment strategy should explain the following points:
Risk and return
Risks involved in making, holding and realising, and the likely return from your fund's investments regarding its objectives and cash flow requirements.
Diversification
Composition of your fund's investments including the extent to which they are diverse (such as investing in a range of assets and asset classes) and the risks of inadequate diversification.
Liquidity
Liquidity of the fund's assets, particularly how easily they can be converted to cash to meet fund expenses such as the cost of managing the fund and income tax expenses.
Liabilities
The fund's ability to discharge its existing and prospective liabilities, including benefit payments and other expenses.
Insurance
Whether insurance cover (such as life, permanent or temporary incapacity insurance) should be held for each SMSF member, and the reasons for that decision.
'Tailored and specific'
There is no specific format for an investment strategy, although the ATO states it should be 'tailored and specific' to the circumstances of the fund and its members rather than merely tick legislative boxes.
Wayne Bemet, founder and chief financial strategist of National Service Financial, told Savings.com.au that a "real" investment strategy should answer the question: How will this fund pay for the retirement of people in it?
Is your investment strategy a 'real' strategy?
Plenty of trustees are running a fund on a document that the accountant or administrator generated at a set-up, which they signed and have never read since. That's a compliance form, not a strategy.
The test I'd apply is simple: could you and your fellow trustees read your strategy and come away with a sound understanding of what the fund holds, and why it holds it?
If not, it needs work.
See also: What are SMSF trustees and what do they do?
How often to review an SMSF investment strategy
The ATO requires SMSF trustees to review their investment strategy regularly to ensure it remains appropriate for the fund and its members' circumstances.
While the ATO does not prescribe a specific time frame, it is recommended to review your SMSF investment strategy at least once a year and whenever significant changes occur.
Certain events that may necessitate a review include:
- Major market movements (e.g. a market correction) affecting the fund's investments
- A member approaching or entering retirement
- A member commencing pension
- A new member joining or an existing member leaving
- Significant changes in a member's personal or financial circumstances (e.g. divorce, illness)
- Large contributions, benefit payments, or asset purchases
According to Mr Bemet, the Division 296 tax that took effect on 1 July 2026 has given large funds "a fresh reason" to review their investment strategies and revisit liquidity and how assets are held.
What is Division 296?
Division 296 is a new tax on superannuation balances above $3 million. From 1 July 2026, individuals with total super balances exceeding $3 million may pay an additional 15% tax on the portion of their super earnings attributable to balances above that threshold. Higher rates apply to balances above $10 million.
The tax is assessed at the individual level, not at the fund level. More information is available at the ATO website.
Any reviews need to be formally documented in a minute, which details how trustees have considered the investment strategy and whether any changes to the strategy are needed.
Trustees should retain evidence that investment strategy reviews have been conducted, as auditors may request documentation showing the review took place and whether any changes were considered.
See also: What is an SMSF audit and how does it work?
How to create an investment strategy
An investment strategy can be as simple as a Word document explaining how the fund's investments will help achieve member's retirement objectives. It does not need to be lengthy or complex, but it must be in writing and tailored specifically to your fund's circumstances.
When creating an investment strategy, you should:
- Define the fund's objectives and retirement goals
- Determine an appropriate asset allocation
- Consider the risks and expected returns of each investment
- Explain how the investments meet each member's retirement objectives
- Consider members' age, employment status, and retirement needs
An investment strategy can be done through an SMSF provider platform, with the help of a specialist financial adviser, or you can do it yourself – if you are willing and able.
For those using a standard template, the ATO warns trustees to be careful as some may not satisfy superannuation rules or be appropriately tailored to reflect a fund's unique circumstances.
How should SMSF investments be allocated
In the past, having a basic outline of targeted returns each year, plus a percentage breakdown of where your investments are going would be sufficient for an SMSF investment strategy. For example, 50% Australian shares, 25% fixed income, 25% property, and so on.
However, the ATO expects investment strategies to go beyond simply listing investment percentages.
"It is not a valid approach to merely specify investment ranges of 0 to 100% for each class of investment," it says. You also need to explain:
- How you plan to invest your super
- Why you require broad ranges to achieve your investment strategy requirements
Trustees should be able to explain why specific investments and asset allocations are appropriate for the fund's circumstances and how they align with members' retirement goals.
While diversification is not mandatory, SMSFs that invest a large proportion of their fund in a single asset or asset class are expected to document in their investment strategy:
- That risks associated with a lack of diversification were considered
- How they think the investment will meet their fund's investment objectives, including investment returns and cash flow requirements
The ATO expects trustees to consider and document the risks of holding concentrated investments, particularly where a large proportion of the fund is invested in a single asset or asset class.
That said, the ATO reminds trustees: "Super laws require you to invest in accordance with the best financial interest of all members."
Putting all eggs in one basket and other common mistakes SMSF trustees make
The mistake isn't having a preferred asset class. Plenty of trustees favour property or direct shares, and that's fine.
The mistake is having a lead act with no supporting acts.
If one asset dominates the fund, what pays the expenses, the tax, the loan repayments, and eventually the pensions if that asset stops producing income?
The other mistake is carrying the same level of risk at 62 [years old] that you carried at 42.
A bad year at 42 is a setback; a bad year at 62 can change when and how you retire, because the fund has less time to recover before members start drawing on it.
How can SMSFs balance long-term growth with short-term needs
The greater control over investment decisions offered by SMSFs can be a double-edged sword. While the flexibility can be empowering, it can also expose trustees to costly mistakes if risks aren't properly understood or managed.
Maintain sufficient liquidity
According to Mr Bemet, maintaining adequate liquidity is an important part of managing an SMSF. As a rule of thumb, he prefers to see around 10% of a fund held in cash or other liquid assets, supported by a diversified portfolio of managed investments aligned with members' risk profiles.
"This way, the fund isn't relying on one part to do every job," he said.
Why retirement changes the equation
The investment needs of an SMSF can change significantly once members enter retirement. While time is generally on your side during the accumulation phase, Mr Bemet says a fund's focus shifts from growing assets to funding pension payments once pensions commence.
"Minimum pension payments must be made every year whatever the markets do, so a fund that's asset-rich and cash-poor can end up in a forced seller at the worst time," he said.
"That's where the liquid buffer earns its keep. It covers near-term payments so growth assets can ride out a downturn."
What happens if I don't have an SMSF investment strategy
Failing to maintain a written investment strategy is a breach of your obligations as an SMSF trustee. If your fund does not have an investment strategy, or the strategy does not adequately address the required considerations, your auditor may report the issue to the ATO as a contravention.
The ATO may take compliance action depending on the seriousness of the breach. This can include requiring trustees to rectify the issue, imposing administrative penalties on individual trustees or, in more serious cases, taking further compliance action against the fund or its trustees.
If your fund's investments no longer align with its investment strategy, trustees should review both the strategy and the fund's investments, documenting any changes and ensuring the strategy remains appropriate for the fund's circumstances and members' retirement objectives.
Savings.com.au's two cents
An SMSF investment strategy is more than just a compliance requirement. It serves as a roadmap for how your fund invests, manages risk, and works towards members' retirement goals.
Your SMSF can be a powerful vehicle for building retirement wealth. But like any journey, success depends on having a clear plan. You are in the driver's seat, so make sure you are steering the fund into the path that benefits you best, regularly checking you're on the course, and making adjustments when conditions change.
If you need help preparing or reviewing your strategy, consider seeking guidance from a specialist SMSF professional or licensed financial adviser.
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