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A guide to SMSF Investments

Get your SMSF running and be confident about your future.

Self-managed Superfunds (SMSFs) are becoming more and more popular among Australians. Previously a hallmark of the ultra-rich, SMSF providers are making managing your own retirement investments more accessible than ever before. With a regular superfund, you have some control over your investments – and the level of risk you want to take on – but SMSFs give you the freedom to invest in anything you like, providing the aim is to boost your retirement savings.

In data released by the ATO in 2017 demonstrated that SMSFs control almost one third (32.6%) of all superannuation money in Australia. This has increased from just 20% in 2004 – so there’s obviously a big attraction here for every day Australians.

In the past, there was a general condition that you had to have at least $200,000 in your superfund to make commencing an SMSF ‘worth it’. There are now plenty of SMSFs run with below $150,000, because with our platform and flat fees it’s affordable to do so. Starting an SMSF today is less about how much capital you have and more about whether you want to take on the responsibility of managing your own investments.

SMSF Investment Strategies

When you commence an SMSF, you must have a written strategy. Yep, sorry to be blunt but simply diving in with both feet and your eye on the prize isn’t enough here – you need official documentation of your investment strategy and why you have chosen it.

What to Include in Your SMSF Investment Strategy

Your investment strategy must include your reason for commencing an SMSF – and here, you can be very simple. Many cite ‘control of investments’ as their main reason for opening an SMSF, and generally that is an acceptable reason. Tick! What’s next?

Your investment strategy is sort of like a mini business plan for your SMSF. You must outline what types of asset classes you intend to invest in, and more importantly – why. Think outside the square on this.


If you want to invest in property, justifying your decision by saying that the property market has grown by x% over x number of years isn’t quite enough. Instead, relate your decision-making to fund members and the balance of the fund. Consider every eventuality, and prove that your fund will be robust enough to handle such an investment. That includes things like the possibility of a property market crash, how well your fund can handle the high transaction fees, how affordable insurances are, whether you’ll be borrowing to buy, and how many years your members have until retirement.

Things to consider in your SMSF investment strategy:

· Risks involved in executing and holding your chosen investment classes

· The likely return from these investments

· How this relates to the SMSF’s objectives

· Projected cash flow requirements

· How this investment decision promotes asset diversity in your fund

· The liquidity of your investment choices

· How the fund would recover in unpredicted eventualities

· The regulations and obligations surrounding investment classes – i.e. taxes, surcharges, etc.

· The age of fund members and their expected number of years before retirement

· Members’ plans should one party leave or retire from the fund and require a payout

Balanced Funds

Generally it said that balanced funds are the ones that offer the most security. Yep, there’s that all important word again – balance. We’re told to balance our lifestyles, our diets, our exercise regimes, our work time, our downtime – we get it, balance is key. When it comes to your superfund, there’s a reason balance is the name of the game. The more ‘balanced’ and diverse your investment portfolio, the lower your fund’s risk – strictly speaking. Spreading your fund across a number of carefully selected investment classes is the simplest way to mitigate risks your fund is exposed to. But remember, there are no guarantees.

No matter how well you manage your investments, economic volatility is often unavoidable – unfortunately. The 2008 global financial crisis took its toll on investments in Australia, and hit retirees already in the drawdown phase particularly hard. While fund returns did recover, millions of retirees may never recoup their losses.

The best advice is to be agile in your investments. Get into the habit of regular monitoring of your returns – that’s the nature of managing your own fund. Adapting and responding to changes in your returns is the best way to keep your fund performing at its best. Keep an eye on the global and domestic economies, too. If conditions are indicative of an economic crash, switching to a more conservative investment strategy could increase your fund’s resilience.

Sole Purpose Test

Ultimately, you’re free to invest your superfund in anything you like, providing it meets the sole purpose test. The sole purpose test assesses your investments against your SMSF strategy and whether the ‘sole purpose’ of that investment decision was to grow your retirement savings. If you can prove that it is, you’re good to go.

The sole purpose test prevents SMSF members from investing in any assets that they or any related party may benefit from. So sadly you can’t buy that classic car you’ve always wanted, or an investment property to lease out to your mates. The ATO is pretty strict on SMSF investments, and properties in particular – so be very careful.

Types of SMSF Investments

We promised a complete guide to SMSF investments – here’s where it gets juicy. We’ve broken down the most popular investments made by SMSF owners, and explained a little about each one to help inform your decision-making.

SMSF Property Investments

Since 2007, SMSF members have been able to obtain loans under a limited recourse borrowing arrangement to facilitate the investment of property with their super. Essentially, this means you can use your superfund cash as a deposit for a property, and take out a loan to pay the rest – just like you would with a regular non-SMSF property. The rules are slightly different though, in that, well, there are a lot more.

Residential Property

SMSF members are permitted to purchase residential property with their superfund, providing they have reasonable evidence to assume that doing so may contribute to their retirement savings. This may be through capital growth, cash flow or a combination of the two. That property cannot, however, be related to any party associated with any fund member. That means no family, friends or anyone known to you or any other fund members can lease the property from you. The fund owners themselves also cannot live in the property under any circumstances. Properties purchased on an LRBA (limited recourse borrowing arrangement) cannot be improved or modified for profit, either. The only works you can carry out are maintenance works.

Commercial Property

Commercial property within an SMSF works slightly differently, in that fund members can operate their own businesses from the SMSF-owned premises. In this case, a member’s business can lease the property from the SMSF, so long as market rates are paid and the arrangement is at ‘arm’s length’. Alternatively, SMSF members can purchase commercial property and lease it to the general market as they would a residential property.

Pros of SMSF property investment:

· Property can be a lucrative investment if executed properly.

· Australians tend to have a greater understanding of property as an investment, since so many people own property of their own – it is the Australian Dream after all.

· Can be a solid long-term strategy to grow your fund over time

· Significant tax benefits

· You are permitted to lease your own commercial premises back from your fund

Cons of SMSF property investment:

· Property attracts heavy transaction costs and taxes like stamp duty and land transfer

· You’ll need to account for the cost of property managers, conveyancers and body corporate costs (if applicable)

· Insurance is vital and must be carefully selected to ensure full protection of you and your tenants

· Generally an expensive asset that may reduce your fund’s asset diversity


Cash in your SMSF can be viewed as working capital. It needs to be there, to pay fees, taxes associated with investment transactions and to maintain a level of liquidity – but may not bring the biggest return. Of course, it depends on the interest rates being paid against that cash held in your fund, but generally, the aim of SMSF investments is to grow your fund through smart investing. Simply sitting on cash isn’t strategic investing.

That said, cash has a valid place in SMSF superfunds. When interest rates are high, stashing cash in your superfund has its obvious benefits, but when they’re low, you can boost your returns by opting for term deposits that generally attract higher rates of interest. Be sure to check how accessible your cash is, though. Locking it away in a term deposit may be yielding higher returns, but what are the fees associated with early withdrawal should your fund need access to cash?

Pros of SMSF Cash Investments

·Generally a liquid investment

·Very low risk

· Simple and doesn’t require much monitoring

· Suited to a watch-and-wait investment strategy if economic conditions are uncertain

Cons of SMSF Cash Investments

· Term deposits that yield higher returns often have hefty fees attached if your fund needs to access the cash

· Generally lower returns

· Less strategic investment decisions

· Returns may not outweigh the cost and labour of running your own superfund


Shares are one of the most common investment classes in superfunds – both SMSF and non-SMSF. If you’re currently not an SMSF owner and you have a regular superfund with a popular provider, chances are your retirement savings are floating in and out of shares investments as we speak. Commencing an SMSF gives you complete control over which shares you want to invest in – and also, how often you buy and sell.

Pros of SMSF Shares Investments:

· Fast and often lower cost transactions

· Can provide high returns if executed efficiently

· SMSF owners can invest in shares of businesses or causes they choose personally

· Offer fund liquidity as sell-backs can free up cash for unexpected events

Cons of SMSF Shares Investments:

· Like other investments, there are no guarantees

· Share values can fall fast and unexpectedly

· Share values can reach zero

· Shareholders can be some of the last in line to be paid when companies fail

· Returns fluctuate month-to-month

Getting Help with Your SMSF Investments

Just like non-SMSF investors, you are entitled to obtain help and advice from brokers, financial advisors and investment experts. Use these tools to grow your knowledge and understanding of investing – particularly when you’re starting out.

Our team is always on hand to answer any questions you might have about SMSFs. We can give general advice on investments, but are not financial advisers and there is a limit to what we can and will advise on personal circumstances.

In Part Two, we’ll take you through the process of Rollover, Accounting and Auditing of your SMSF.

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