Document Samples

SMSF Investment Strategy

One of the key rules in the Superannuation laws and regulations is that the trustees of a SMSF must formulate and give effect to an investment strategy. The investment strategy must set out the investment objectives of the fund, and detail the investment methods the fund will adopt to achieve these objectives.

Trustees must ensure that all investment decisions are made in accordance with the investment strategy. They must also ensure that they have taken into account all the circumstances of the fund in formulating this investment strategy. Specifically, the SIS acts states that:

 

The trustee of the entity must formulate and give effect to an investment strategy that has regard to all the circumstances of the entity, including in particular:

 

                (a)    the risk involved in making, holding and realising, and the likely return from, the entity's investments, having regard to its objectives and expected cash flow requirements;

 

               (b)    the composition of the entity's investments as a whole, including the extent to which they are diverse or involve exposure of the entity to risks from inadequate diversification;

 

                (c)    the liquidity of the entity's investments, having regard to its expected cash flow requirements;

 

               (d)    the ability of the entity to discharge its existing and prospective liabilities.

 

The bottom line is that you, the trustees are responsible for this. If the establishment service that you used to setup your SMSF had a one page, generic investment strategy template with little or no commentary, or did not include specific asset classes or tools that your using (e.g. derivatives), then a serious question needs to be asked as to whether this is sufficient. The answer is it probably isn't. And who is to blame ? Bottom line is you, if you are the trustee of the fund. No good blaming the setup service or your accountant. The trustees are responsible for their own fund, and the documentation of the fund. If you don’t know or don’t have a copy of your own SMSFs investment strategy, you had better get a copy and get familiar with it very soon. If the document is insufficient to cover what you are doing (or are wanting to do) in the fund, then look at changing it or bringing it up to scratch. The ATO have stated quite clearly that trustees may seek professional advice in formulating an investment strategy, however this does not reduce your responsibilities or obligations.

 

A comprehensive SMSF investment strategy sample template

For those following very basic, traditional investment methods, the written investment strategy should be fairly straight forward. However, for those using more sophisticated or advanced investment methods, the document can be a bit more difficult to construct.

 

The good news for our members is that The SMSF Review has a comprehensive, detailed SMSF investment strategy sample template that you can use to get you started. It covers a large range of asset classes, including investments such as derivatives, hedge funds, precious metals etc as well as the traditional stuff like shares and fixed interest.

 

Note however, that this is only a sample document and that it is your responsibility as trustee(s) to formulate and implement your own investment strategy. We are not advising you to specifically use this one.

 

One more important point – when you are coming up with new investment strategies for your SMSF and your written investment strategy, don’t forget to check that your trust deed allows it, and of course that it is allowed under the SIS laws. The trust deed overrides what is in your investment strategy, and the SIS laws override your trust deed..

 

Our sample SMSF investment strategy template is a downloadable Word document to use as you wish.

 

Note that this document is reserved for our members.

 

If your not a member, its FREE to join. Click here for more information. Once your a member, you'll be provided with the page link to download this document.

Don't want to look at ours and want to do your own from scratch ?  

Here’s a few suggestions on doing up a comprehensive written investment strategy: 

 

1. Start by listing out the investment objectives of the fund i.e. is the primary objective to grow the capital while in the accumulation phase, or is it to produce a steady income stream because the fund or member is in the pension phase. You may also state a long term return objective.

 

2. Overall strategy of the fund: will you use a diversified asset allocation or a focused one? Will you have a bias toward growth assets or income assets? Will you use other risk management tools for hedging purposes etc ?

 

3. Asset allocation parameters & specific investment methods: This is the main body of the document. Here you outline what percentage of the fund’s total assets can be apportioned to a particular asset class at any one time. This is usually done in a min & max range e.g. 20 – 50%. It is not acceptable to do 0 – 100% for everything (unless you are only using one asset class).  Then within each asset class, outline the investment methods used i.e. for Australian equities, outline the use of direct shares, managed funds, the use of derivatives (if any), or the use of short selling (if any). These last two would also need an explanation of how exposures are calculated. This is important as you need to understand how the exposures are calculated, and always be able to relate it back to your investment strategy.

 

4. If a particular asset does not fit into any of the traditional asset classes, look at creating it in your document. For example, if in a hedge fund which changes it’s asset allocation frequently, perhaps use the “hedge fund” as the asset class, as it may be impossible to assign the underlying assets because of the trading methods of the fund manager. Then use an appendix to define which funds you assess to fall into this category.

 

5. Present a normal, long term asset allocation benchmark as at the date of the document. These are not ranges, but an actual figure to which the trustee is using as a long term asset allocation target, noting of course that in the short term there can be quite a variance from these levels. E.g. Equities 30%, Property 30%, fixed interest 20% etc.

 

6. Don’t forget to sign and date the document. Also ensure that there are trustee minutes to enact the strategy. This may actually form part of the document.