For Australians who want to take control of their retirement savings, self-managed super funds (SMSFs) are an appealing choice. In particular, the option to apply for a self-managed super fund loan to invest in property is an especially exciting opportunity.
An SMSF loan can give you more opportunities to build your retirement fund and secure your future by providing you with the finances to buy a new residential or commercial investment property that you might not have been able to purchase otherwise.
However, to maximise these opportunities, you need a plan.
An SMSF investment strategy is a written plan that outlines how a self-managed super fund will invest its assets, manage risk, and achieve the retirement objectives of its members. It’s not just an essential planning tool. It’s also a legal requirement.
Creating the strategy is one of the most empowering steps in setting up your fund. It’s where your plans to fund the retirement you want really take shape. From buying shares to purchasing a property, you can craft an investment approach that’s as unique as your goals.
So, it’s definitely worth understanding exactly how an SMSF investment strategy works.
In this article, I’ll cover:
- The basics of an SMSF investment strategy
- Asset options for your SMSF
- 8 steps to creating an SMSF investment strategy
- SMSF costs to consider
- How to ensure your strategy is compliant
- 7 common mistakes to avoid
The basics of an SMSF investment strategy
Your investment strategy must explain how the fund will invest. It needs to take into account factors like diversification, liquidity, and the ability of the fund to meet its liabilities.
The strategy should reflect both the current circumstances of the members and the long-term purpose of the SMSF: funding a comfortable – or even luxury – retirement.
5 things an SMSF investment strategy is NOT
Let’s take a moment to clear up a few misconceptions about SMSF investment strategies. An SMSF investment strategy is not:
- A list of current investments. An investment strategy doesn’t simply record the assets the fund holds. It is a forward-looking framework that guides future decisions, and it must be in place before making any purchases with the fund.
- A compliance formality. Don’t treat the strategy as a box-ticking exercise. It should genuinely guide investment decisions to help you reach your goals.
- A static document. An investment strategy is definitely not in the “set and forget” category. You’ll need to review it regularly and document those reviews.
- A guarantee of returns. While the strategy outlines your approach to managing risk and pursuing returns, it can’t predict specific financial outcomes.
- Separate from the fund’s investments. All investments you make with the fund must align with the documented strategy. If you buy an asset not covered in the strategy, you’re in breach of it from the day of settlement.
Now let’s take a look at the central question for any SMSF – where the fund will actually invest its money.
Asset options for your SMSF
Determining the right mix of asset classes for your SMSF will depend on things like your retirement goals, time horizon, and appetite for risk. In many cases, choosing a diversified portfolio containing several asset classes is an effective strategy to secure growth without excessive risk.
Here are some of the most common investments used in SMSF portfolios.
Property
For many people, property represents a familiar and straightforward investment. Over time, well-chosen real estate can provide capital growth, while commercial premises could also provide a rental income stream if leased to a trustee’s business.
However, buying property with your SMSF also raises issues that your strategy must address. For instance, if a property represents a large proportion of the fund’s assets, the strategy must explain why this level of concentration is appropriate.
Any property purchase must also be compliant with ATO rules. For example, residential property owned by an SMSF cannot be lived in or used by members or their relatives.
You may be able to use a limited recourse borrowing arrangement (LRBA) to secure a loan for buying a property with your SMSF. This structure allows the fund to borrow against a single asset while limiting the lender’s claim to that asset alone.
While borrowing can make a property purchase possible, it also adds complexity. Working with a broker who understands SMSF finance can make the process much smoother and help ensure the loan structure fits your fund’s investment strategy requirements. That’s where we can help. Book a free discovery session to find out more.
Shares
There are many different companies that you might choose to invest in by buying shares. You could speculate on small start-up companies, where the gains have the potential to be big, but come with greater risk. Alternatively, investing in ‘blue chip’ stocks (large, well-established companies) can be more secure and often provide a dividend income stream, which can be useful in the pension phase.
Many Australian shares also offer franking credits, which means you can offset some of your tax liabilities with credits for taxes that the company has already paid.
ETFs
A low-cost way to gain exposure to shares in a large number of companies, ETFs automatically track the performance of a particular share index. This could be something broad like the ASX 200 or the S&P 500, or an index with a narrower focus, such as healthcare companies or green energy enterprises.
Like individual shares, the value of ETFs can fluctuate with the market. However, their broad exposure makes them a comparatively low-risk investment.
Cash and term deposits
Probably the SMSF asset class with the lowest risk. While interest rates can vary, and inflation can affect the value of your dollars, you are unlikely to lose your cash if it’s in a bank account or fixed-term deposit. I recommend checking that the bank is a government-authorised, deposit-taking institution. That means your money is protected up to $250,000 if the bank fails.
Cryptocurrencies
In contrast to cash, cryptocurrencies are a high-risk investment. Values can fluctuate wildly, often in response to evolving legislation. Security can also be an issue. Think carefully about whether cryptocurrencies are a risk worth taking with your SMSF resources. If you do decide to speculate, I’d suggest only assigning a small percentage of your portfolio to it.
Collectables and personal use assets
Another reasonably high-risk investment is items that are ordinarily used or kept for personal enjoyment, like art, vintage cars, and wine. Accurate valuations can be hard to get, and SMSF regulations mean you must store them away from your premises, have adequate insurance covering them, and you’re not allowed to use the items. If you’re an expert in something, it can be lucrative. If you’re a novice, think hard before investing.
Commodities
You can invest in commodities, such as precious metals, either in tangible assets (think gold bars) or through shares or ETFs linked to those commodities. They can be a good hedge against economic uncertainty and inflation. However, given that you are investing in a single commodity, you are at the mercy of market fluctuations.
Trusts
Trusts can provide investment exposure to a range of assets, such as property and infrastructure. Some trusts also distribute regular income payments. However, trusts can be difficult to sell quickly and may have more intricate compliance requirements than, say, ETFs.
Remember, regardless of which assets you choose, you must purchase them in the name of the super fund and keep them separate from any assets held by the trustees personally.
8 steps to creating an SMSF investment strategy
Here is a simple, practical process for developing and maintaining an investment strategy that SMSF trustees can use to guide investment decisions and support the long-term objectives of the fund.
1. Define your objectives
The first step is to clarify what the members of the fund want to achieve in retirement. At what age do members plan to retire? What sort of lifestyle do they hope to enjoy then? What level of income will they need to do so? Defining these objectives helps shape the direction of the strategy.
2. Understand members’ circumstances
The next thing to consider is the current personal and financial circumstances of each member of the fund. Factors such as members’ age, employment status, income level, and existing super balances will feed into your investment approach, ensuring the SMSF is tailored to the specific needs, risk tolerance, and time horizons of the members.
3. Set a timeframe
Using the information from the first two steps, you can now work out an appropriate investment timeframe. A key consideration will be how long the fund expects to hold its investments before members begin drawing retirement benefits. For example, if all the members are years away from retirement, your strategy might include a higher proportion of growth assets. On the other hand, if members are nearing pension age, you might focus more on assets that provide capital security and income.
4. Determine risk tolerance
Every investment carries some risk, and you’ll need to decide how much volatility the fund can accept. A higher tolerance for risk may allow the fund to pursue stronger long-term growth, while a more conservative approach would prioritise capital preservation. Your strategy should outline a level of risk that is appropriate for the members’ circumstances and retirement timeframe.
5. Decide on asset allocation
Once the member risk profile is clear, you can then determine how the fund’s assets should be allocated across different investment classes. These could include shares, property, fixed interest and cash, among others. A well-considered asset allocation helps balance potential returns with risk.
6. Consider costs and liabilities
Investment decisions within an SMSF should also account for tax, fees, and other costs. Understanding these commitments helps you determine how much liquidity the fund will need to maintain, ensuring it can pay the costs without being forced to sell long-term investments at a less-than-optimum time.
7. Document the investment strategy
Once you’ve made all the above decisions, document the strategy in writing. Detail all the decisions you have made, ensuring you’ve covered all the areas necessary for the strategy to be compliant.
8. Sign, adopt and review the strategy regularly
The final step is for all the trustees to review the document. They need to sign the investment strategy and date it. You don’t need to lodge the investment strategy with the ATO, but it must be available on request and will be analysed during the fund’s annual audit.
You must, however, review it regularly – at least once a year – or whenever there’s a change in circumstances, such as:
- When members reach retirement
- If major market fluctuations occur
- If one or more members join or leave the fund
- Or when the fund makes a significant investment, such as purchasing a property.
SMSF costs to consider
Running a self-managed super fund involves many ongoing costs, which can change over time. These costs may directly affect asset allocation, liquidity and long-term returns, so you need to factor them into your strategic thinking.
6 Costs To Factor Into Your Strategy
| Cost | Examples | Impact on strategy |
| Set-up | Establishing a trustee company, generating a trust deed | Requires that the trustees provide initial funding |
| Administration | Accounting fees, record-keeping expenses, annual supervisory levy | Requires liquidity |
| Audit fees | Independent annual audit | Budgeting for recurring expenses |
| Investment | Brokerage, property costs (such as conveyancing fees), trust fees | Reduces net returns |
| Loan repayments | LRBA repayments | Affects cash flow |
| Pension payments | Income for trustees who have retired | Requires sufficient liquidity |
Tax and SMSFs
Tax is another cost you need to consider when creating your investment strategy. Integrating tax planning into each step of your strategy will help your SMSF grow efficiently while remaining compliant.
Accumulation phase: Mostly, SMSFs are taxed at 15%, the same as traditional super funds. Understanding the tax treatment of different assets can influence how you allocate the fund’s portfolio.
Pension phase: When trustees hit the pension phase, investment earnings on assets that support income streams for retirees are often tax-free.
Timing purchases: SMSFs can provide certain tax planning advantages due to the control you have over investment decisions. For example, if you want to buy shares, you could choose to do so at the start of the financial year to maximise time in the market and potential for growth.
Stay on top of changes: Tax legislation often changes, so it pays to stay across them and adjust the strategy as required. For example, from 1 July 2026, if you have more than $3 million in total superannuation, including SMSFs, earnings above that threshold will face an extra 15% tax.
How to ensure your strategy is compliant
To comply with ATO rules, there are several key areas that your SMSF strategy must address. Doing so will also make it a more effective tool for guiding your investment decisions.
Sole purpose test
Investments cannot provide current benefits to the SMSF members or any related parties. This ensures the fund is genuinely utilised for retirement savings rather than personal use. For example, you can’t buy an investment property in the fund’s name and then treat it as a holiday home.
Arms-length transactions
To prevent trustees from using the fund to give financial advantages to themselves, a relative or their business, any fund asset must be purchased at its true market value. For instance, if the fund leases commercial property to a member’s company, the rent must be set at the true market rate.
Diversification
A diversified fund is one that invests in several different asset classes, spreading the risk so that, if one of the classes underperforms, the entire fund is not at risk. An example would be that, instead of investing all the fund’s assets in one property, it also held shares, managed funds, and fixed interest bank accounts.
Liquidity
The fund must have the ability to pay expenses, taxes and member benefits. As such, most SMSFs hold some of their assets in cash to cover the annual costs of running the fund.
Meeting obligations
You must consider the fund’s ability to meet current and future commitments, such as tax liabilities and pension payments. For instance, you might change the strategy to increase defensive assets as members move closer to retirement.
Insurance
While you don’t have to provide insurance to your trustees, you have to weigh up whether it is appropriate or not. If you decide against it, it’s essential to document the reasons why.
Clear legal ownership
All investments must be legally owned by the fund. Your assets must be in the name of the fund or a trustee acting on behalf of it – not in the personal name of a member or a related party of the SMSF.
What happens if your strategy is non-compliant?
As an SMSF owner, you need to arrange for your fund to be independently audited every year. If your fund is not compliant with your investment strategy, the auditor will be most likely to flag it.
The first remedy will be to fix the breach. This could mean crafting an addendum to the strategy or convening a trustee meeting and documenting the remedial action. Keeping minutes or notes of investment decisions shows that you and your fellow trustees have acted with the fund’s strategy and obligations in mind.
If you fail to remedy the breach, the auditor will need to report it to the ATO, and you may be liable for penalties, such as a fine or loss of tax benefits. In the worst-case scenario, you might be ruled ineligible to run an SMSF.
7 common mistakes to avoid
A less-than-robust strategy can create compliance issues and make it harder for the fund to achieve its aim: providing you with a comfortable retirement.
Here are seven common mistakes to avoid when creating your strategy.
1. Using a generic template
Search online, and you will easily find a basic or ‘boilerplate’ SMSF investment strategy template. It will often contain statements that are so vague that they become meaningless. While a template may help you get started, you must craft a strategy that is unique and tailored to the specific circumstances of the fund and its members.
2. Treating the strategy as a record of investments
An investment strategy is not a list of assets the fund currently holds. Rather, it should outline the principles guiding future investments.
3. Failing to consider diversification
Some SMSFs invest heavily in one or two asset classes, such as property and shares in a single company. This is permitted if you can show that you have considered the risks of such a lack of diversification, but it is rare. For most people, a diverse range of assets is the way to go to secure long-term growth and manage risk.
4. Making investments outside the strategy
Purchasing an asset that is not covered by the strategy can create compliance risks, and you could be in breach from the day of settlement.
5. Ignoring liquidity
It’s important to determine the expected cash flow requirements of the fund and keep sufficient liquidity to meet them. These could include administration expenses, taxes and member benefit payments, such as retirement incomes like pensions.
6. Not reviewing the strategy regularly
Trustees should spend time reviewing SMSF investment strategy documents at least once a year (and record that you’ve done so). It’s also a good idea to review it when circumstances change, such as a member leaving the fund or moving into retirement, if the stock or property market crashes, or you make a significant purchase in the fund.
7. Not considering insurance
You don’t have to take out insurance for your trust’s members (such as life insurance or permanent disability insurance), but you do have to document your decision in your strategy.
Your next move
There are many options for securing a loan to purchase a property through your SMSF. At The Mortgage Agency, our expert brokers can help you work out the best way to make property an effective part of your SMSF investment strategy and navigate the regulations around it.
Book a discovery session with us today, or call The Mortgage Agency on 0423 718 612.
FAQs
What happens if I don’t have an SMSF investment strategy?
If your strategy is missing or inadequate, or you have one and don’t follow it, this is likely to be flagged by an auditor. They may then report any issues to the ATO, who will likely ask you to update the strategy. If it’s still not compliant, you could face penalties, such as fines and a loss of tax benefits.
Can an SMSF invest all its money in one asset?
The short answer is yes. There is no rule that says an SMSF can’t hold a large portion – or indeed all – of its assets in a single investment. However, if the investment strategy states that the fund is concentrated in just one asset, it must also explain why this approach is appropriate for the goals of the fund’s members, and detail how you’ll manage the associated risks.
Does my SMSF investment strategy have to include asset allocation targets?
No, you don’t need to outline specific percentages. However, many SMSF strategies do include some guidelines because they provide a clearer framework for managing the investments. Plus, it’s an effective way to show that you’ve considered diversification and risk factors.
