The SMSF Fund’s Investment Strategy

When establishing your Self Managed Superannuation Fund the structure and registration of the fund with the regulators is a prescriptive process.  The key and arguably most important step however, is the formulation, documenting and implementing  a  unique Investment Strategy.

What is an SMSF’s Investment Strategy

Superannuation law requires a SMSF to have an investment strategy.   The Superannuation Industry Supervision Act requires that an Investment Strategy is formulated, reviewed regularly and given effect to.  The investment strategy has regard to the all the circumstances of the fund covering the following;

  • the risk involved in making, holding and realising, the fund’s investments, having regard to its objectives
  • its expected cash flow requirements the likely return from investments
  • the composition of the fund’s investments including the extent to which the investments are diverse or involve the fund in being exposed to risks from inadequate diversification;
  • the liquidity of the fund’s investments, having regard to its expected cash flow requirements;
  • the ability of the fund to discharge its existing and prospective liabilities

Discipline and commitment to the Strategy is needed

“A successful lifelong investment experience hinges on three critical steps: the development of a prudent investment plan, the full implementation of that plan, and the discipline to maintain the plan in good times and bad.  If you create a good plan and follow it, your probability of financial freedom increases exponentially.”

All about Asset Allocation: by Richard A. Ferri, CFA

This paragraph highlights that the implementation and maintaining the investments strategy is key.  That the SMSF legislation requires trustees to have a written strategy is beneficial as with a written plan one is more likely to follow it.  One should read the strategy regularly especially at the time of making investment decisions.

 

 

Next Steps:

ASX Investment Strategy Page

Moneysmart: Investment Strategy

Recommended Reading: 

All about Asset Allocation: by Richard A. Ferri, CFA

Common Stocks and uncommon profits, by Philip A Fischer

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