As you are no doubt aware, every superannuation fund is required by law to have a complying investment strategy.
The investment strategy should have an explanation of:
- what you are aiming to achieve financially, and
- how do you plan to achieve your financial objective?
It makes sense when establishing your investment strategy that you consider the following.
- Return: What percentage return are you aiming for? This could be a single percentage or a percentage range. Alternatively, some trustees aim for a benchmark of, say, 3% above inflation.
- Planning: Are you planning for growth, for example, high capital gains or a regular income stream, such as interest and/or dividends or a combination of both?
- Diversification: Are you planning on diversifying your asset classes, such as one-third in property, one-third in shares and one-third in cash, or alternatively, 100% in an investment property?
- Risk: The trustees are responsible for considering the risks associated with each investment. For example, if the only asset is an investment property, what would the effect be on the member’s retirement benefit if that asset were to decline in value, or is the net income generated from the property sufficient to pay an adequate pension to a retiree?
- Insurance: The trustee must also consider whether it is appropriate for the fund to take out insurance for its members, such as life insurance. Considering insurance doesn’t mean the members have to have insurance. Still, it does mean that the trustees are to assess whether insurance is needed or not, depending on the members’ circumstances.
Note that there is no right or wrong investment strategy. The investment strategy will depend on your financial goals for the self-managed superannuation fund (SMSF) and the ages and circumstances of the individual members.
The Importance of Investment Decisions
The principal benefit of a complete and accurate investment strategy is that it sets a short, medium, and long-term direction for the superannuation fund. Importantly, it ensures that the superannuation fund does not make spontaneous ad hoc investment decisions.
Are you ready to Maximise Your Self-Managed Superannuation Fund? Please feel free to contact Peter Quinn by submitting an enquiry or calling us on +61 2 9580 9166 to book an obligation-free appointment.
The information in this document does not take into account your personal objectives, financial situation, or needs so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.