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How to Create the Best SMSF Investment Strategy

By Will Ellis
Last Updated on February 26, 2024
Edited by Adam Turner
Fact checked and reviewed
Long Term Investment

A Self-Managed Superannuation Fund (SMSF) is a great way to build your retirement savings, so it makes sense to have the best investment strategy to help your nest egg grow.

Many Australians have an SMSF; as of June 2022, there were more than 603,000 SMFs with more than 1.123 million members. You can start one at any time, as long as you follow the rules and requirements set by the Australian government.

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You can start an SMSF on your own or with other people. An SMSF investment strategy is based on the current financial needs of each member of the fund. Are you looking to kickstart your SMSF investment strategy? In this article, you’ll learn all about SMSF investment strategy, and I’ve got some helpful tips for reaching your investment objectives.

Table of Contents:

What Is an SMSF Investment Strategy? 👀️

SMSF investment strategy is a plan for making, holding and realising assets consistent with your investment objectives and retirement goals. The sole purpose of this fund is to provide retirement benefits for when an SMSF trustee retires.

An SMSF is a private superannuation fund that you manage yourself. Up to six members can join the fund, and you’re all equally responsible for fund decisions, compliance and super laws. There are two rules you need to follow as a member of an SMSF:

  • Members cannot employ other members.
  • Trustees can’t be financially compensated for their services.

Starting an SMSF allows you to control your investment options for your retirement funds fully. Members of an SMFS are also trustees who run it for the benefit and are responsible for superannuation and tax laws. So, you can control how much money is paid into the fund, where it’s paid and how much is needed to invest.

The Pros and Cons of SMSF Investment Strategy ➡️

The advantages of an SMSF depend on your inclination, abilities and circumstances. However, there are general member benefits that come with opening an SMSF.

Pros ✅️

  • Lower tax: The income of your SMSF is generally taxed at a concessional rate of 15% (the same as a traditional managed super fund). To be entitled to this tax rate, your fund must comply with the laws and rules concerning SMSFs. When you retire at retirement age, the retirement savings from the fund there
  • Ownership in investment strategies: Members of an SMSF investment strategy have complete control over the fund. Collectively, if there’s more than one of you, you decide the investment objectives and plan. You choose what asset class to invest in.
  • Retirement benefits: An SMSF pays benefits in the form of a lump sum, an income pension stream or a combination of both.
  • More significant fund balances: If multiple people join your fund, you’ll have a larger fund balance for investments, which means you have an increased chance of expanding your fund’s assets with more investment opportunities.

Cons ❌️

  • Takes time: Starting and managing an SMSF’s investments takes time and dedication. You need to do a lot of investment research, and you need to review your investment strategy annually and make a note of it to abide by super laws.
  • Knowledgeable on investment strategy: You must know about asset classes and investments. If you start investing in an asset you don’t know much about, you risk putting your investments in danger.
  • Not suitable for everyone: Other super funds may be better suited to your needs. You’ll need a large sum of money to begin an SMSF. If you have a low amount of funds, there may be different investment strategies you can use without setting up an SMSF.
  • Fees and ongoing expenses: There are legal fees, admin fees, and maintenance fees involved in operating SMSFs, so you need to ensure you make a return and profit on your investments. A lower balance may not be worth starting an SMSF investment strategy, especially if your fees are costly and cut into potential asset profits.

How to Create the Best SMSF Investment Strategy 📝️

You may be unsure where to start if you’ve not started your investment strategy yet. I’ve listed the five steps to get your SMSF investments on the go. If you need help figuring out where to start for your SMSF’s investment plan, use our investment strategy template below to help you get started.

Step 1: Prepare an Investment Strategy Plan for Your SMSF

Your plan needs to be in writing and include the following details: age, employment status, and retirement needs, all of which influence your risk appetite.

You need to set investment objectives. This includes deciding the percentage or dollar allocation of the funds assets invested in your chosen asset classes, and determine how those choices will support your investment strategy to achieve your retirement goals.

You need to maintain a copy of your investment strategy document, and every time you do an annual investment review, you need to make note of the review even if there are no changes.

Step 2: Assess the Risk Involved

When creating your financial plan for the SMSF, you must assess the risk involved in making, holding and realising your own SMSF investment strategy. 

There are several factors you will need to consider, such as: 

  • Existing and prospective liabilities beyond debt facilities.
  • Member liability and the types of assets you’re investing in.
  • The return from your fund’s investments regarding objectives and expected cash flow requirements.
  • Market conditions; some assets are more prone to volatility than others. Consider past behaviours of the sale of assets to help you predict future ones.

Step 3: Consider Asset Classes

You and your fellow SMSF trustees can invest in various assets, such as shares, property, overseas investment, bonds, term deposits, physical commodities, collectables, digital currencies and managed funds. With the different asset classes, your income streams will be more diverse.

Step 4: Check Liquidity

You need to look at the liquidity of the assets you want to invest in and determine if they can be converted to meet fund expenses quickly. You’ll need to determine the cost of managing the fund and income tax expenses. 

Also, consider how members expect to benefit from the fund. For example, when SMSF trustees retire, will they require a lump sum or regular pension payments? You’ll need to consider asset payout.

Step 5: Investment Decisions and Insurance Cover

You and other members should decide to hold insurance policy cover for each member, such as life, permanent, and temporary incapacity insurance. You must ensure you’ve got each SMSF trustee’s best interest at the heart of all decisions. 

You need to plan what happens when a member joins or retires. Every time something changes within your fund, you must take note.

Different Approaches for Your SMSF Investment Strategy 💸️

You must tailor your investment strategy according to your specific investment goals. I’ve made a list of investment approaches you may find helpful. However, remember your budget, the types of asset classes you know most about, and the investment risk involved.

Capital Growth

You can create your investment strategy with capital growth in mind. The idea is to focus on only investing in two asset classes. You can supercharge your SMSF investment strategy with capital growth assets, by using your self-managed super fund to buy shares and real estate properties.

If you want property, you can buy it outright with cash or use a limited recourse borrowing arrangement. You can invest in direct property, residential or commercial property as part of your super fund. Direct property allows you to generate both capital growth and an income stream.

If your fund currently owns any property, consider selling these illiquid assets and reinvesting them into more liquid assets or more property. This approach does take time and effort to sell and buy real estate for cash, so you’ll need to ensure your SMSF has enough liquid assets to meet the expenses.

If you’re well versed in property investment, this strategy may be the best approach for your super fund.

Diversifying Your Investments

Investing in just one asset class is risky. If there is a volatile market condition, you could lose all your assets in one go. However, investing in various asset classes gives you a better chance to survive against volatile markets.

Investments can be risky, so you should diversify your portfolio to reduce the risk. You could put your funds in several different classes. Ensure you note how much you are putting in and expecting back, and you’ll need to include this information in your reviews. If you use percentage investment ranges, explain why you chose the ranges and how much you plan to invest.

Final Thoughts on SMSF Investment Strategies

A strong investment strategy will help you achieve your investment objectives much faster. How well you manage the fund will determine how much cash you have when you retire. So, you can successfully work towards your retirement goals by writing a clear investment strategy and implementing and making frequent reviews.

Frequently Asked Questions 📢️

Does SMSF Need an Investment Strategy?

Yes. If you start an SMSF without an investment strategy, you risk investing in the wrong assets or losing your investments quickly. With a clear investment strategy, you can outline your retirement goals, determine which assets will help increase your fund, and lay out all the risks involved before you invest money.

What Are the Benefits of an SMSF Investment Strategy?

There are several benefits of starting a self-managed superannuation fund, such as:

  • The income of your SMSF is generally taxed at a concessional rate of 15%. 
  • Members of an SMSF investment strategy have complete control over the fund. 
  • An SMSF pays benefits as a lump sum, an income pension stream or a combination of both.
  • If multiple people join your fund, you’ll have a larger fund balance for investments.

Who Does the Investment Strategy of an SMSF?

The trustee or trustees collectively make every decision concerning SMSF investments. So, together, you decide what and how you invest your funds. The SMSF has to benefit each member for retirement and follow certain legal requirements.

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