With the long-term outlook for a lower-return, higher risk investment environment, investors have a particularly strong incentive to have carefully diversified portfolios and sound investment strategies. It is critical to handle these more challenging conditions in a disciplined way.
No doubt, some trustees of Australia’s over 600,000 self-managed super funds – with another 30,000 or so set to join them during 2017-18 – may grumble occasionally about having to prepare and regularly update the mandatory investment strategy for SMSFs.
Yet a thoroughly and diligently prepared and regularly reviewed investment strategy is one of the most significant documents that an SMSF will hold. If used correctly, an appropriate investment strategy should help guide an SMSF through the highs and lows of changing investment environments.
In fact, the fundamental requirements for an SMSF’s investment strategy, as set out in superannuation law, can provide a valuable blueprint for any investor – including those who don’t invest through an SMSF.
SMSF trustees are legally required to prepare, implement and regularly review an investment strategy that has regard to the whole circumstances of their fund.
These circumstances include investment risks, likely returns, liquidity, investment diversity, risks of inadequate diversity and ability to pay member benefits. And trustees must consider the profile of their members, which would include their individual tolerances to risk.
Further, SMSF trustees are required to consider whether to hold insurance for their members.
Superannuation editor Stuart Jones writes in the Australian Superannuation Handbook 2017-18, published by Thomson Reuters, that the “most challenging” SMSF requirement for many trustees is establishing and maintaining an appropriate investment strategy for their funds.
To comply with superannuation law, Jones says that SMSF trustees need to prepare an investment policy statement covering the fund’s objectives, how those objectives are going to be achieved (including through its asset allocation) and its investment strategy.
The preparation and regular reviewing of an investment strategy should prompt trustees to think carefully about their funds, their approach to investment and the changing personal circumstances of each member. Such changing circumstances include, of course, a member’s retirement.
Even if you don’t invest through an SMSF, why not take a close look at the investment strategies that SMSF trustees are required to hold?
Please contact us on (03) 9769 9500 for assistance .
Written by Robin Bowerman, Head of Corporate Affairs at Vanguard.
Source : Vanguard 29 March 2018
Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.
© 2018 Vanguard Investments Australia Ltd. All rights reserved.
Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for any action or any service provided by the author.
Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.
