Why a generic one size fits all investment strategy may be problematic
There is already a lot to consider before you begin to invest in your super fund. To help you keep your investments on track, the Superannuation Law requires you to prepare an Investment Strategy. An investment strategy sets out the fund’s investment objectives and outlines the types of investments your fund can invest in, in order to achieve the fund’s objectives.
Your investment strategy is not something that you can set and forget, it must be reviewed regularly to ensure it continues to reflect the purpose and circumstances of your fund and its members. Any review, decisions or changes should be well documented.
With all this in mind, how do you get it right?
It is recommended to avoid obtaining a generic investment strategy from either your accountant or the internet as a generic investment strategy may not be suitable to meet your fund’s objectives nor satisfy Superannuation Law requirements. Ideally, an investment strategy should be prepared by a licensed advisor who will be able to document an appropriate written investment strategy that will satisfy both your fund’s objectives and Superannuation Law.
Before formulating your Investment Strategy, Superannuation Law requires you to consider the following:
- diversification (spreading investments over a number of individual assets and classes of assets)
- the liquidity of the fund’s assets (how easily can the assets be converted to cash to meet fund expenses)
- the fund’s ability to pay benefits (when members retire) and other costs that may arise
- consider whether it is appropriate to hold an insurance cover (such as life insurance) for each member of your SMSF.
A generic investment strategy generally may not cater to your fund to hold non-traditional investments, or may not document the risks associated that are specific to an individual investment or unpredictability of investment returns.
Complex matters such as paying a death benefit require careful thought and consideration. A generic strategy may not allow you to capture the level of detail and consideration that is required.
An appropriately prepared investment strategy is an important fund document that requires due diligence before being prepared or updated and is regularly reviewed to ensure that it remains current and appropriate to meet the fund’s objectives. By not having an appropriately documented investment strategy may expose your fund to not being compliant with Superannuation Law.