Why do I need an investment strategy?

As well as ensuring that the fund’s investments are allowed, SMSF trustees are also required to formally decide on and document the fund’s investment strategy.  This is just the framework you decide to adopt for making and maintaining investments.

In deciding on your investment strategy, you would normally consider things like how much risk you want to take, what returns you are aiming for, what sorts of investments you want to make (e.g. shares, cash), whether your fund will tend to need a lot of cash (for example, if you are regularly making payments out of the fund such as pensions).

There is no right answer, the strategy you adopt is completely up to you.  This is part of the flexibility of an SMSF.  Bear in mind that you can also change it – what works for you today might not be the best strategy for you in the future.

Heffron does not provide investment advice but we can deal with the legal documentation you need to put in place once you have decided on your strategy.  We can also give you some examples of investment strategies we’ve seen in practice that might help you develop your own.  Remember that these strategies are examples only.

Conservative Investor Balanced Investor High Growth Investor
The trustees

Brian and Wendy are conservative investors.  They retired some years ago and while they consider themselves comfortable enough, their SMSF nest egg is all they have.  They have decided that they can live with modest investment returns over the long term but what really keeps them awake at night is anything too risky that might cause significant drops in their SMSF portfolio.

Kim and Mandy consider themselves “balanced” in every sense of the word.  Their SMSF is of average size for their age (45), they are contributing regularly and they are still some way off retirement.  They are happy to take some risk,  they realise their SMSF portfolio might drop in some years but are confident they will secure better returns over the longer term.

Josh is 30.  His SMSF is growing rapidly because he’s contributing every spare dollar to his fund via a salary sacrifice arrangement.  He sees retirement as being a long way off and knows he can’t touch his super for at least 30 years.  He’s happy for his portfolio to go up and down just like the share market as long as he can see a way to achieve the best possible returns over the long term.

Investment Objective Returns that are 1% above inflation over 3 years Returns that are 2% above inflation over 3 years Returns that are 5% above inflation over 3 years
Investment Strategy
Australian Shares (growth) 15%-25% 25%-35% 65%-75%
International Shares (growth) 5%-15% 5%-15% 0%
Property (growth) 5%-10% 5%-15% 0%
Australian Fixed Interest (defensive) 30%-40% 15%-25% 0%
International Fixed Interest (defensive) 0%-10% 0%-10% 0%
Cash (defensive) 20%-25% 10%-20% 5%-10%