SMSF Investment Strategy Matters: here’s Why
When it comes to managing your own superannuation through a Self-Managed Super Fund (SMSF), having a clear and compliant investment strategy is essential. An SMSF provides greater control and flexibility over your retirement savings, along with potential tax advantages — but it also comes with important responsibilities.
Whether you’re setting up a new SMSF or reviewing an existing one, understanding how to structure and manage your investments is key to meeting your retirement goals, remaining compliant with superannuation laws, and protecting your fund’s concessional tax treatment.
In this article, we explore the core principles of SMSF investing — from legal obligations and diversification strategies to risk management and asset ownership rules — to help you make informed, confident decisions.
Start with a Solid Investment Strategy
Every Self-Managed Super Fund must begin with a clear and compliant investment strategy. This document outlines how your SMSF will invest and should offer flexibility to align with your goals and risk tolerance.
Common SMSF investments include cash, shares, property (both domestic and international), and in some cases, cryptocurrency. You might initially invest in cash only, then diversify as the fund grows.
However, all investments must satisfy the Sole Purpose Test, ensuring they are made solely to provide retirement or death benefits to members or their beneficiaries.
The Sole Purpose Test
The Sole Purpose Test is a fundamental legal requirement under superannuation law. It ensures that all investments or actions undertaken by an SMSF are made for the exclusive purpose of:
- Providing retirement benefits, or
- Providing death benefits to beneficiaries.
In addition, all investments must be made:
- On an arm’s-length basis, and
- With the sole aim of supporting members’ retirement outcomes.
Using SMSF funds for personal purposes — such as early access to funds or personal use of SMSF-owned property — is a breach of the test. This can result in the fund losing its concessional tax status and facing penalties. Compliance must be maintained at all times.
Legal Obligations for Trustees
As an SMSF trustee, you are legally responsible for managing the fund’s investment strategy. This includes:
- Preparing and implementing a strategy that suits the fund’s objectives and members’ needs
- Reviewing and updating the strategy regularly, especially when members’ circumstances change
Your strategy must consider:
- The risks and expected returns of each investment, relative to the fund’s goals and cash flow
- The overall asset mix, ensuring adequate diversification
- Liquidity — to meet expenses such as taxes, administration fees, or pension payments
- The ability to meet existing and future liabilities
Investment Objectives, Risk Tolerance & Diversification
Trustees may aim for a target return — for example, CPI + 2–3% — based on:
- Member retirement timelines
- Individual risk profiles
- Fund growth objectives
If member risk tolerances differ significantly, separate SMSFs may be necessary. However, co-investment through structured asset partnerships may still be viable.
Diversification is essential for managing investment risk and reducing volatility. This involves spreading investments across a range of asset classes, sectors, and regions. For smaller SMSFs, meaningful diversification may only become achievable as balances grow through contributions, rollovers, and earnings.
The chart below from the Australian Taxation Office’s Self-Managed Superannuation Fund Statistical Report illustrates how Australian SMSFs are currently allocating their assets.
Most SMSFs hold a large proportion of assets in Australian shares (35%) and property (33%), followed by cash and fixed interest (25%). This highlights the importance of reviewing investment strategies to ensure diversification and manage risk.
Ensuring Compliance with Ownership Rules
To maintain compliance and simplify auditing:
- Register all SMSF investments in the name of the fund
- Pay fund-related expenses directly from the SMSF’s bank account
- Retain invoices and receipts made out to the SMSF
These practices demonstrate that assets and expenses are for the sole purpose of providing retirement or death benefits, in line with the Sole Purpose Test.
Types of SMSF Investments & Associated Expenses
Property Investment
SMSFs can invest in:
- Residential and commercial property
- Directly or via managed investment structures
- Domestic or overseas markets
- Using cash or through a Limited Recourse Borrowing Arrangement (LRBA)
If an SMSF owns commercial property used by a member’s business, market rent must be charged. This ensures compliance, provides tax-deductible income for the business, and contributes to retirement savings. Personal use of residential SMSF property is not permitted under any circumstances.
Paying Expenses
Trustees must ensure the fund maintains adequate liquidity to cover:
- Tax obligations (income tax, capital gains, PAYG, GST)
- Operational costs (brokerage, legal, audit, administration)
- Member benefit payments
Insurance
Since 2013, trustees are required to consider the insurance needs of each member annually. While not mandatory, it is best practice to consult with an insurance specialist to assess whether appropriate cover is in place.
10 Common SMSF Investment Strategies
Here are ten widely used strategies to help SMSF members build and manage their retirement wealth:
- In-specie contributions – Transfer existing personal assets (e.g. shares or property) into your SMSF to access concessional tax treatment.
- Business premises ownership – Your SMSF can own the commercial premises used by your business, offering tax advantages and asset protection.
- Leveraged property investing – Use an LRBA to acquire property, ensuring the investment remains compliant.
- Borrowing to invest in listed assets – LRBAs may also be used to acquire a parcel of identical shares or assets, subject to loan servicing capacity.
- Asset segregation – Allocate specific assets to individual members’ pension or accumulation accounts for tailored tax treatment.
- Contribution splitting – Split up to 85% of concessional contributions with a spouse to balance super balances.
- Tax-effective pension planning – Run multiple pensions to draw down less favourable tax components first.
- Direct fixed-income investing – Use listed bonds or hybrids for members with lower risk tolerance.
- GST registration – If eligible, the SMSF may register for GST and claim partial input tax credits via the BAS.
- Tax-free drawdowns – Members under 60 may withdraw a lump sum of up to $185,000 tax-free (based on current thresholds).
Considering an SMSF?
If you’re thinking about setting up a Self-Managed Super Fund — or reviewing an existing one — the experienced advisers at Continuum Financial Planners Pty Ltd can help.
We support SMSF clients with tailored strategies for fund establishment, investment structuring, compliance, and ongoing retirement planning.
To speak with one of our advisers:
- Call our office on 07 3421 3456, or
- Use our convenient Book A Meeting facility online.
(This article was originally posted by us in March 2025.)
