Samantha Horton
An SMSF investment strategy is your written plan for how your self-managed super fund will invest its money to meet members' retirement goals.
Australian law requires every SMSF to have one, and it must address five specific factors — risk and return, diversification, liquidity, the fund's ability to pay its bills, and insurance for members. This guide explains what that means in plain English and how trustees can put a strategy together.
What is an SMSF investment strategy?
An SMSF investment strategy is a written document that sets out how your fund will invest to achieve its objectives. The Australian Taxation Office (ATO) describes it as your fund's plan for making, holding and realising assets in line with its investment objectives and retirement goals.
A self-managed super fund (SMSF) is a private super fund that you manage yourself, where the members are usually also the trustees who are legally responsible for running it. Because trustees make the investment decisions, the strategy is the reference point that guides those decisions and shows why they were made.
The legal foundation sits in the Superannuation Industry (Supervision) Act 1993 and Regulation 4.09 of the accompanying regulations. Two points matter most: the strategy must be in writing, and it must be tailored to your fund — the ATO is clear that it should not simply repeat the words of the legislation. There is no prescribed format or template you must use. What matters is that it genuinely reflects your fund's circumstances and the members' retirement objectives.
Is an SMSF investment strategy legally required?
Yes. Formulating, regularly reviewing and giving effect to an investment strategy is an operating standard under super law — in other words, it is a legal obligation for trustees, not an optional extra.
Your strategy is checked at your fund's annual audit. Every SMSF must be audited each year by a registered SMSF auditor, who looks for three things: that a strategy exists and addresses the required factors, that the fund's actual investments during the year were consistent with it, and that it was reviewed during the year. If the auditor identifies a breach that hasn't been fixed, they may be required to lodge an Auditor Contravention Report with the ATO, which can lead to compliance action or penalties.
As a trustee, you are legally responsible for your fund's compliance with superannuation law. You can get help preparing the strategy, but the responsibility for managing the fund's investments in members' best financial interests stays with you.
The five factors your strategy must address (SIS Reg 4.09)
Regulation 4.09 does not tell you what to invest in. Instead, it sets out five factors your strategy must genuinely consider and document. Addressing each one clearly is the single best way to keep your strategy compliant.
Factor | What it means | Questions to work through |
|---|---|---|
Risk and return | The risk of making, holding and selling each investment, and the return you expect from it | Do the chosen assets match members' goals and timeframe? Does the expected return justify the risk? |
Diversification | How your investments are spread — and the risk of having too much in one asset or asset class | Is the fund concentrated? If so, why is that appropriate, and is it documented? |
Liquidity | How easily assets can be converted to cash to meet the fund's expected cash-flow needs | Can the fund cover expenses, the ATO supervisory levy, audit fees and any pension payments when due? |
Ability to pay liabilities | The fund's capacity to discharge its existing and future liabilities | Will there be enough cash to pay benefits when members retire or draw a pension? |
Insurance | Whether the trustees should hold insurance cover for one or more members | Have you considered each member's age, dependants and existing cover, and recorded that consideration? |
A common misconception is that the law forces your fund to be diversified. It does not — but it does require you to consider diversification and, if your fund is heavily concentrated in a single asset (property is the classic example), to document the rationale so your auditor can see it.
How to create an SMSF investment strategy (step by step)
Creating a strategy is a process of setting goals, mapping them to investments, and writing down how you have addressed each legal factor. Here is a straightforward way to approach it.
Set your fund's investment objectives. Decide what the fund is trying to achieve — for example, long-term capital growth, reliable income, or a blend — and over what timeframe. Anchor everything to the sole purpose of providing retirement benefits.
Assess each member's circumstances. Consider members' ages, how far they are from retirement, their risk tolerance, and their cash-flow needs. A fund with members near pension phase has very different liquidity needs to one with members in their 30s.
Decide your target asset allocation. Set out the asset classes the fund will use — such as Australian shares, ETFs, cash, term deposits, bonds or property — and the broad proportion the fund aims to hold in each.
Address each Reg 4.09 factor in writing. For risk and return, diversification, liquidity, ability to pay liabilities, and insurance, write a short, specific note on how your chosen approach deals with it. This is what an auditor will read.
Give effect to the strategy. Actually invest in line with the plan. A strategy that says one thing while the fund does another is a compliance risk.
Review it regularly. Revisit the strategy at least annually and whenever the fund's circumstances change — a new member, a large contribution, or a member entering pension phase. Record the date of each review and what you considered, even if you make no changes.
An illustrative asset-allocation example (AUD)
The table below shows how portfolios are commonly categorised by their mix of growth assets (like shares and property) and defensive assets (like cash, term deposits and bonds). These are general illustrations to show how allocation ranges differ by objective — they are not recommendations, and the right mix for any fund depends entirely on that fund's own objectives and members' circumstances.
Profile | Typical growth assets | Typical defensive assets | General aim |
|---|---|---|---|
Defensive | ~10–30% | ~70–90% | Stability and income, lower volatility |
Balanced | ~40–60% | ~40–60% | A blend of growth and income |
Growth | ~70–85% | ~15–30% | Longer-term capital growth, higher volatility |
For a $500,000 fund, a "balanced" categorisation might, for example, sit around $250,000 in growth assets and $250,000 in defensive assets — but the appropriate split for your fund should follow from your objectives and the five Reg 4.09 factors, not from a generic percentage.
Read more: Five ways to achieve portfolio diversification
Common SMSF investment options in Australia
SMSFs can invest across a wide range of asset classes, provided each investment fits the strategy and passes the sole purpose test. Common options include:
Australian shares — direct ownership of ASX-listed companies, often chosen for dividends and franking credits.
Exchange-traded funds (ETFs) — a low-cost way to get diversified exposure across markets or themes in a single trade.
Cash and term deposits — held for stability, income and liquidity.
Bonds — for income and to balance the volatility of shares.
Direct property — permitted, but subject to strict rules; it is illiquid and needs careful cash-flow planning.
Two rules shape all of these. The sole purpose test means the fund must be maintained solely to provide retirement (or death) benefits to members and their beneficiaries. And there are strict limits on dealing with members and related parties — generally you can't acquire assets from, or lend money to, fund members or related parties. For how these rules apply to your fund, and for anything tax-related, speak to a registered tax agent or SMSF specialist, and see ASIC's Moneysmart guidance on SMSFs.
Diversification and concentration risk
Diversification simply means spreading your fund's money across different assets and asset classes so that a poor result in one doesn't sink the whole fund. Regulation 4.09 requires you to consider it — and if your fund is concentrated (say, most of its value in a single property or a handful of shares), the law expects you to explain in the strategy why that concentration is appropriate for your members. Liquidity is the other side of the same coin: a concentrated, illiquid fund can struggle to pay pensions and expenses when they fall due.
How you hold your investments matters
For an SMSF, how you hold your assets is not just an investing question — it's a record-keeping and audit one. When you buy Australian-listed shares and ETFs that are CHESS-sponsored, the fund holds them directly under its own Holder Identification Number (HIN), rather than through a custodian. That means clear, direct legal ownership and a transparent paper trail, which makes it easier to demonstrate to your auditor that the fund's investments line up with its strategy. If you're new to the concept, here's how CHESS sponsorship works.
Cost also flows through to net returns over the long horizons SMSFs invest over. Selfwealth charges a flat $9.50 brokerage per trade on Australian share and ETF trades, with no account-keeping fees — you can see the full detail on Selfwealth's flat brokerage page.
Giving effect to your strategy — and reviewing it
A strategy only counts if the fund actually invests in line with it, and if you keep it current. "Giving effect to" your strategy means your day-to-day investing matches the plan on paper — the mismatch between the two is exactly what auditors look for.
Consistency helps here. Investing set amounts on a regular schedule — a form of dollar-cost averaging — can be a disciplined way to build positions in line with a target allocation, rather than trying to time the market. Selfwealth's recurring-order feature can automate that rhythm for chosen shares and ETFs.
Learn more: Auto-Invest: set up recurring investments
Finally, build the review habit. Revisit the strategy at least once a year and whenever something material changes, and write down the review date and what you considered — even a "reviewed, no changes needed" note is valuable evidence at audit time.
Ready to invest your SMSF with direct, low-cost ownership?
Selfwealth by Syfe offers SMSF trading accounts with CHESS-sponsored ownership, flat brokerage and reporting support for accountants and administrators. Open an SMSF trading account and put your fund's strategy into action.
Frequently asked questions
Do I need a financial adviser to write my SMSF investment strategy?
No. The law does not require a professional to prepare your strategy — trustees can write it themselves. A licensed financial adviser or SMSF specialist can help, and many trustees choose to use one, but you remain legally responsible for the fund either way.
How often should I review my SMSF investment strategy?
Regularly — and at least once a year, as part of the fund's annual cycle. You should also review it whenever circumstances change, such as a new member joining, a large contribution, or a member moving into the pension phase. Record the review date and what you considered, even if nothing changes.
Can my SMSF invest 100% in one asset, like property?
It isn't automatically prohibited, but a concentrated fund must document why that concentration suits its members, and must still meet its liquidity and cash-flow obligations. Regulation 4.09 requires you to consider diversification; if you choose not to diversify, your reasoning needs to be written into the strategy for your auditor.
What happens if my SMSF doesn't have a compliant investment strategy?
Having a strategy is a legal operating standard. If your fund lacks a compliant strategy, your auditor may be required to lodge an Auditor Contravention Report with the ATO, which can lead to compliance action, penalties, or in serious cases disqualification as a trustee.
Can I invest my SMSF in shares and ETFs?
Yes. Australian shares and ETFs are common SMSF investments, provided each investment fits your fund's strategy and complies with the sole purpose test and the rules on related-party transactions.
Important disclaimer: SelfWealth Pty Ltd ABN 52 154 324 428 (“Selfwealth”) (AFSL 421789). The information contained on this website is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser and/or accountant. Taxation, legal and other matters referred to on this website are of a general nature only and should not be relied upon in place of appropriate professional advice. You should obtain the relevant Product Disclosure Statement for any product mentioned and consider its contents before making any decision.
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