The rules and the tax settings around SMSFs can be complex, and each year the ATO finds funds that have broken some part of the superannuation law. A clear investment strategy, reviewed every year, is one of the best ways to stay on track. Here are five steps.
1. Accept your responsibility as trustee
You can hand the paperwork to others, but you can't hand over your duties as trustee. They include making sure the trust deed is current and fits today's superannuation law, and that the fund has an up-to-date investment strategy.
2. Set your investment objectives
Your fund should support what you need in retirement. Start with questions like these:
- How old are you and the other members?
- Are members still working, or drawing a pension?
- How many years are left until retirement?
- How much income will members need?
- How much will each member contribute?
- How will tax on the investments and their income affect the fund?
- How much of members' retirement needs will the fund meet?
- How much risk are you willing to take?
Then write down objectives you can measure. For example:
- The fund will beat inflation by a set percentage each year.
- The fund will reach a set value within five years.
3. Decide how to spread the fund's assets
Decide how much to hold in each kind of asset, such as shares, property, fixed interest and cash, based on the risk and return you're aiming for. Your strategy should say what the fund will invest in and in what proportions, or within what ranges.
4. Check the rules
Before you invest, check the rules that apply to what you have in mind: for example the limits on investing with related parties, on borrowing and on in-house assets.
5. Document the strategy
Make sure the strategy is written down, and signed off by all trustees. The law also requires the strategy to consider whether the fund should hold insurance for its members. If the fund holds most of its money in one asset, such as a single property, the strategy should explain why, and how the fund will manage that risk and its cash needs. Keep the strategy and every review with the fund's records, and follow the superannuation laws at all times.
If you're a trustee, your accountant or a licensed financial adviser can help you prepare and review your strategy.