Many trustees follow a set template when they invest through their SMSF. But super can generally only be withdrawn once a member meets a condition of release, such as retiring after reaching preservation age, so the fund needs a strategy built for the long term. It is surprising how often trustees go without professional advice on this.
Here are four investment strategy basics.
1. Diversify
Every investment carries risk, and managing an SMSF can be daunting if you're new to investing. One of the simplest strategies is diversification: spreading the fund's money across different kinds of assets, such as Australian and international shares, property, fixed interest and cash. A fund can usually diversify more as its balance grows. Keep in mind the rules on investing with related parties: for example, an SMSF can generally hold only a small part of its assets in investments in, or loans to, members and their related parties.
2. Plan for changing needs
Members' needs change over time. Write down what each member is likely to need, and when, so the strategy can plan for it, including keeping enough cash to pay pensions and the fund's costs.
3. Consider insurance
Many trustees invest without thinking about insurance for members. The law requires the investment strategy to consider it. Cover can support members and their families in hard times, depending on the policy.
4. Have the fund audited every year
Every SMSF must be audited each year by an approved SMSF auditor. The audit checks the fund's accounts and whether it has followed the law, so the fund keeps its tax concessions.
If you're a trustee, your accountant can look after the fund's accounts and administration, and a licensed financial adviser can help with the strategy.